Untitled

Kernel Holding S.A.

ANNUAL REPORT

For the year ended 30 June 2022

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Kernel is a diversified agricultural

business in Ukraine, the leading

exporter of agricultural products

from the Black Sea region.

We are the world’s leading producer and exporter of sunflower

oil, the largest grain exporter from Ukraine, operator of an exten-

sive agricultural logistics network and the largest producer of

grain and oilseeds in Ukraine. In FY2022, we supplied 10 million

tons of agricultural products from Ukraine all over the world.

1-40

Strategic Report

Key Highlights

Operating Highlights

Chairman’s Statement

Our Business Model

Kernel at a Glance

Impact of War

Strategy 2026

Financial Performance in FY2022

Segment Performance

Oilseed Processing

Infrastructure and Trading

Farming

Risk Management

Alternative Performance Measures

41-73

Sustainability

74-82

Corporate Governance

83-146

Financial Statements

Independent Auditor’s Report

Statement of Management Responsibilities

Selected Financial Data

Consolidated Statement of Financial Position

Consolidated Statement of Profit or Loss

Consolidated Statement of Profit or Loss and

Other Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

146

Corporate Information

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Key Highlights

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

US$ million except ratios and EPS

FY2021

FY2022

y-o-y

Income statement highlights

Revenue

5,595

5,332

(5%)

EBITDA

806

220

(73%)

Net profit attributable to equity holders of Kernel Holding S.A.

513

(41)

n/a

EBITDA margin

14.4%

4.1%

(10.3pp)

Net margin

9.2%

(0.8%)

(9.9pp)

Earnings per share, US$

6.10

(0.51)

n/a

Cash flow highlights

Operating profit before working capital changes

649

677

Change in working capital

(44)

(794)

18x

Finance costs paid, net

(129)

(119)

(7%)

Income tax paid

(18)

(70)

3.8x

Net cash generated by operating activities

460

(305)

n/a

Net cash used in investing activities

(203)

(294)

45%

Liquidity and credit metrics

Net debt

836

1,488

78%

Commodity inventories

285

892

3.1x

Adjusted net debt

551

596

Shareholders' equity

1,946

1,683

(14%)

Net debt / EBITDA

1.0x

6.8x

+5.7x

Adjusted net debt

/ EBITDA

0.7x

2.7x

+2.0x

EBITDA / Interest

5.7x

1.8x

-3.8x

Non-financial highlights

Number of employees (full-time equivalent) as of 30 June

11,256

10,223

(9%)

Rate of recordable work-related injuries, accidents per million worked hours

0.46

0.22

(52%)

Social spending, US$ million

3.9

26.3

6.7x

Greenhouse gas emissions, thousand tons of CO

equivalent

1,462

1,272

(13%)

Total energy consumption, terajoules

7,391

6,881

(7%)

Note: Financial year ends 30 June.

1. Figures for FY2021 were corrected, as explained in detail in the notes to the consolidated financial statements.

2. Hereinafter, EBITDA is calculated as the sum of the profit from operating activities plus amortization and depreciation.

3. Commodity inventories are inventories such as corn, wheat, sunflower oil, and other products that were easily convertible into cash before the Russian invasion of Ukraine given their commodity

characteristics, widely available markets and the international pricing mechanism. The Group used to call such inventories as “Readily marketable inventories”, but after the beginning of the war in

Ukraine the Group faced difficulties selling such inventories, and therefore such inventories cannot any longer be considered as readily marketable.

4. Adjusted debt is the sum of short-term interest-bearing debt, current maturities of long-term interest-bearing debt, long-term interest-bearing debt and lease liabilities, less cash and cash equiva-

lents and commodity inventories at cost.

5. Excluding employees related to assets held for sale as of the reporting date.

Hereinafter differences between totals and sums of the parts are possible due to rounding.

Hereinafter “Kernel”, “Group” or “Company” refers to the Kernel Holding S.A. group of companies.

This Strategic Report together with the “Sustainability” and “Corporate Governance” sections shall be read and perceived as Directors’ Report for the purposes of the Luxembourg legislation.

……………………………………………………………………

Net debt / EBITDA

2.8x

2.0x

2.2x

1.0x

6.8x

FY2018 FY2019 FY2020 FY2021 FY2022

……………………………………………………………………

EBITDA

US$ million

223

346

443

806

220

FY2018 FY2019 FY2020 FY2021 FY2022

……………………………………………………………………

Net cash generated by operating activities

US$ million

199

269

460

(305)

FY2018 FY2019 FY2020 FY2021 FY2022

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Operating Highlights

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Despite the extremely supportive funda-

mentals (record crop yields, strong global

grain and oilseed prices), the segment

EBITDA reduced twofold, to US$ 219 mil-

lion, accounting for US$ 145 million losses

mostly stemming from the reduction of inven-

tory value to the net realizable value and the

impairment of right-of-use assets, goodwill,

and PP&E.

Adjusting for such losses, the segment

EBITDA ended up at US$ 364 million in

FY2022, 99% of which was secured in the first

half of the year, while in the H2 FY2022 Farm-

ing balanced close to zero EBITDA.

Given the blurred perspectives of farming busi-

ness, provided seaports in Ukraine are closed

for a long time, the Group decided to divest

farming entities operating 134 thousand

hectares of leasehold land, related infra-

structure and working capital to de-risk its op-

erations.

For the second year in a row, decent segment

performance in FY2022 is mainly driven by

trading profits: the Group recognized US$ 134

million EBITDA attributable to Avere activities

(or 57% of US$ 237 million total segment

EBITDA) in FY2022, as the trading team skill-

fully exploited the volatility prevailing on the

soft commodity markets.

Grain export value chain in Ukraine gener-

ated US$ 103 million EBITDA, reflecting:

• Strong pre-war performance driven by

record grain harvest in Ukraine and up-

scaled Kernel grain export asset base. Prac-

tically all FY2022 segment volumes were

delivered before 24 February 2022; and

• Loss-making operations after the war

broke out, negatively impacted also by US$

82 million losses stemming from the reduc-

tion of the inventory value to the net realiza-

ble value, the reserve created for the inven-

tories located on territories occupied by

Russia, provisions created for receivables

and other one-off losses.

Infrastructure and Trading

The disruptions in exports due to the war in

Ukraine forced Kernel to temporarily suspend

oilseed processing operations and resulted in

the sales volumes decline. The Group pro-

cessed 2.2 million tons of sunflower seeds

in FY2022, down 31% y-o-y, implying 60% ca-

pacity utilization. Sunflower oil sales volumes

dwindled to 1 million tons.

Segment EBITDA amounted to a negative

US$ 70 million, suffering US$ 185 million

losses related to inventories (reduction of

value to the net realizable value, write-off of

destroyed inventories and reserve for invento-

ries located on territories occupied by Russia)

and impairment of goodwill and PP&E.

As a result, the EBITDA margin per ton of oil

sold turned negative to US$ 73.

……………………………………………………………………………………….

EBITDA margin

US$ / ha

149

163

920

440

FY2018 FY2019 FY2020 FY2021 FY2022

………………………………………………………………………………………

EBITDA

US$ millions

182

134

461

219

FY2017 FY2018 FY2019 FY2020 FY2021

………………………………………………………………………………………

EBITDA margin

US$ / ton of sunflower oil sold

100

(73)

FY2018 FY2019 FY2020 FY2021 FY2022

Farming

……………………………………………………………………………………

Kernel’s production of key crops

596

529

513

501

499

2.5

3.3

3.1

2.9

3.3

FY2018 FY2019 FY2020 FY2021 FY2022

Acreage harvested, thousand hectares

Crop production, million tons

Oilseed Processing

………………………………………………………………………………………..

EBITDA

US$ millions

109

152

(70)

FY2018 FY2019 FY2020 FY2021 FY2022

……………………………………………………………………………………….

Segment volumes

million tons

3.1

3.2

3.4

3.2

2.2

1.4

1.6

1.5

1.4

1.0

FY2018 FY2019 FY2020 FY2021 FY2022

Oilseeds processed Sunflower oil sales

……………………………………………………………………………………

Segment volumes

million tons

4.0

6.1

7.9 8.0 8.0

4.1

4.6

6.7

8.2

7.3

3.3

4.3

4.2

3.8

4.2

FY2018 FY2019 FY2020 FY2021 FY2022

Grain export from Ukraine

Export terminal throughput

Inland silos in-take volumes

……………………………………………………………………………………

EBITDA margin

US$ / ton of grain exported

FY2018 FY2019 FY2020 FY2021 FY2022

total

excl. Avere

………………………………………………………………………………………...

EBITDA

1,2

US$ millions

101

106

216

359

237

FY2018 FY2019 FY2020 FY2021 FY2022

Here and further segment EBITDA is provided before unallocated corporate expenses.

FY2021 EBITDA of Infrastructure and Trading segment was corrected, as explained in detail in the notes to the consolidated financial statements.

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

Chairman’s Statement

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Andrii Verevskyi

Chairman of the Board of Directors,

Founder

Dear Shareholders,

On behalf of the Board of Directors of Kernel

Holding S.A., I would like to present the Group

performance for the year ending 30 June 2022,

summarizing the negative impact of ongoing

war in Ukraine, as well as sharing our view on

risks and challenges for the new season.

FY2022 highlights

Group’s EBITDA in FY2022 plummeted by

73% y-o-y, to US$ 220 million. We recognized

US$ 495 million losses related to Russian mil-

itary aggression against Ukraine and incre-

mentally we spent US$ 26 million on social

and military needs to support Ukrainian army

and communities impacted by the war. This is

just a part of the war costs we bore, in addi-

tion to lost profits and unplanned capital ex-

penditures. Strong operating results attained

prior to 24 February 2022 were destroyed by

the war and translated into a net loss of US$

41 million attributable to shareholders. As

a result, the net debt peaked at US$ 1.5 bil-

lion as of 30 June 2022, implying 6.8x net-

debt-to-EBITDA, the highest in our history.

Before describing the performance in detail, I

will first provide a general context of the situ-

ation we live in. The operating environment

was quite positive in the first half of our fi-

nancial year. Ukraine delivered a record har-

vest of grain and oilseeds. Soft commodity

prices were supportive. We were progressing

toward the commissioning of the largest

crushing plant in Ukraine and completion of

our extensive renewable energy projects. We

increased returns to shareholders via share

buybacks and dividends and repaid the re-

maining US$ 213 million of our debut Euro-

bond. The new ambitious growth Strategy

2026 was announced, and the team was fully

focused on its execution.

And then the war came. The unprovoked

and illegal aggression of Russia completely

obscured the peaceful life of all Ukrainians

and placed a heavy toll on the business in

Ukraine. Military actions unseen in Europe

since World War II were progressing in the re-

gions of our operations in the northern and

eastern Ukraine. Inventories with a book

value of nearly US$ 11 million were de-

stroyed, and inventories with the value of US$

53 million remained located in the occupied

territories. We stopped all but one of our

crushing plants due to safety reasons and the

uncertainty regarding our ability to export

sunflower oil and meal. Two of our crushing

plants were occupied by the enemy. Due to

force majeure events, we terminated export

contracts with a total value of US$ 1.6 billion.

Almost 1,300 of our employees were mobi-

lized to the Armed Forces of Ukraine or joined

the Territorial Defense units to withstand the

Russian aggression. Tragically, 14 our em-

ployees died because of the military actions

and 51 were injured as of the date of this

report.

Our first reaction was to ensure the safety of

our employees and stabilize operations.

We have switched to daily anti-crisis manage-

ment and launched the strong support cam-

paign for the Ukrainian defenders and people

in need of humanitarian aid.

Immediately in March, we initiated the nego-

tiations with creditors to postpone the re-

payment of loan principal amounts.

The key challenge for our operations ap-

peared to be the inability to export goods

via Ukrainian Black Sea ports, which

stopped all our export operations through

deep-water ports. Alternative export routes

via the Ukraine-EU border were not ready to

absorb the massive flows of goods for export,

so we halted virtually all export activities. With

uninspiring progress on the battlefield at the

end of March, there was a strong likelihood of

keeping exports closed for a long time and

even losing the entire south of Ukraine to-

gether with all its ports. In such circum-

stances, farming business would suffer the

most, as it eventually becomes loss making

without the ability to reach the international

marketplace, requiring a lot of working capital

to keep operations going, and bearing a sig-

nificant social burden. Considering also the

limited progress achieved back then with

creditors on the new debt repayment sched-

ule, in April 2022 the Board decided to sell

some farming entities to de-risk the business.

But after market sounding there appeared to

be no interest, so I decided to step in and offer

the price of US$ 210 million for corporate

rights of such business. The independent ap-

praisal has confirmed that the offered price is

in line with the fair value of disposed assets

as of the transaction date. The deal allowed

Kernel to de-risk operations and injected

some new liquidity.

Despite all the challenges with the deficit of

crop inputs and uncertainties around the sale

of farming produce, we decided to proceed

with the spring planting campaign in our

farming business, except for 28 thousand

hectares of land in the northern regions of

Ukraine, which suffered the most from Rus-

sia’s invasion. We increased the share of

acreage under sunflower to compensate for

the reduced acreage under corn.

As the war was dragging on, we fully focused

our efforts on establishing alternative ex-

port routes. It was an extremely difficult task,

especially for such a giant as Kernel. In Q4

FY2022, our grain export constituted just 4%

and sunflower oil only 15% of Q2 level. Logis-

tics costs surged in Q4 FY2022 making grain

export operations unprofitable. It became ob-

vious that there is no scalable and economi-

cally viable alternative to seaborn exports of

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Chairman’s Statement continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

soft commodities from Ukraine. Only upon

opening of the grain corridor under the UN in-

itiative, did we reached meaningful export vol-

ume allowing us to maintain a certain level of

our activities. Before that, our operations

were lossmaking.

Switching now to segments.

The Oilseed Processing activities in FY2022

resulted in a negative EBITDA of US$ 70 mil-

lion, mostly suffering from enormous US$ 185

million losses related to inventories, mainly

from revaluation of the stock as well as a

write-off of destroyed inventories, reserve for

inventories located on the territories occupied

by Russia and the impairment of goodwill and

property, which were recognized in the H2

FY2022 because of the Russian invasion of

Ukraine. Since the start of the war, our sale

volumes reduced though the crush margin el-

evated, driven by the growing global prices for

sunflower oil and suppressed domestic prices

for sunflower seeds.

EBITDA of the Infrastructure and Trading

segment amounted to US$ 237 million in

FY2022, down 34% y-o-y. Avere non-Ukrain-

ian trading activities contributed more than

half of that, resulting in US$ 134 million

EBITDA. Grain export value chain in Ukraine

generated US$ 103 million EBITDA, including

US$ 82 million losses due to damage and

write-off of inventories and provisions created

for accounts receivable. Generally, the grain

export operations in Ukraine were loss-mak-

ing in Q4 FY2022, reflecting difficulties in es-

tablishing efficient alternative export routes.

The Farming segment generated the

EBITDA of US$ 219 million in FY2022, down

52% y-o-y, including US$ 145 million losses

stemming from the impairment of assets and

losses of inventories owing to the ongoing

war in Ukraine. Farming earnings were se-

cured in the first half of the year, while in the

second half the business was operationally

loss-making. On top of that, almost 800 thou-

sand tons of corn and sunflower seeds of in-

house produce remained unsold as of 30

June 2022.

Strong performance in FY2021 and in the first

half of FY2022 generated a substantial liquid-

ity buffer, so we started returning capital to

our investors. In August 2021, we approved a

large share buyback program, and by Feb-

ruary 2022, we purchased over 6.6 million

shares on the market, or 7.9% of shares is-

sued, to treasury stock for a total considera-

tion of US$ 97 million. In December 2021, we

completed an early redemption of the remain-

ing US$ 213 million of our US$ 500 million

2022 Eurobonds. All of that was pre-war. No

need to say, that our approach has totally

changed since 24 February 2022. With

stretched liquidity and huge uncertainty pre-

vailing, the Board of Directors decided to

recommend shareholders not to pay divi-

dends for the year ending 30 June 2022.

Due to liquidity difficulties, our ability to ser-

vice debt has suffered. While we kept paying

interest on all our indebtedness, we were

forced to launch the negotiations with banks

to obtain waivers on the repayment of the

loan principal until 30 September 2022,

which we managed to achieve. However, due

to the continued Russian aggression, we en-

tered again a new round of negotiations. As

of the date of publication of this report, the

majority of our creditors have signed such

waivers, and some of them are still in the pro-

cess, providing us with “reservation of rights”

letters. Based on the progress achieved, we

feel a certain comfort that we will manage to

reach agreements with all creditors on the

postponement of the loan principal repay-

ment until 30 June 2023 subject to other

terms and conditions. We are grateful to all

our creditors for standing with us during these

difficult times.

Next year risks and challenges

FY2023 will probably be the most challeng-

ing season in our history, and it is likely to be

a story not about the profits, but rather about

the liquidity management and preserving op-

erations. We do not provide any guidance for

volumes or margins, as these components

simply cannot be predicted, but rather focus

on the risks we face today.

We entered the new season with a record

brought forward stock of over 2.5 million tons

of grains, oilseeds, sunflower oil and sun-

flower meal worth of nearly US$ 900 million,

creating a huge pressure on our storage ca-

pacities in the view of the approaching new

harvest campaign. Later on, some relief was

provided by the grain deal signed in July

2022 with the help of UN and Turkey. To

some extent, it allowed to avoid a full collapse

of grain storage and logistic infrastructure

caused by the approaching harvest in

Ukraine. However, the recent Russian state-

ments under far-fetched pretext to unilaterally

terminate the grain deal create a huge uncer-

tainty regarding its continuation going for-

ward.

While development of the alternative export

routes is always on our radar and we have an

action plan prepared for that case, it will be

very difficult to increase volumes substantially

above the levels achieved in Q4 FY2022 if the

Black Sea is inaccessible for us for exports.

What is more, even if the grain deal is ex-

tended, it remains subject to the risk of sabo-

tage from Russia. We have already seen

that Russian representatives deliberately de-

layed the inspection of vessels, and the out-

bound queue waiting to leave the Bosporus in

late October exceeded 100 vessels carrying

over 2 million tons of agricultural products.

Some vessels had to wait for more than 20

days to be inspected. Such delays extend

voyages and substantially increase logistics

costs, eroding profit margins.

No matter what, we will keep working on es-

tablishing the alternative export routes,

though a significant capital expenditure

would be required to increase export vol-

umes. We preliminarily estimate such invest-

ment needs at over US$ 170 million, covering

rail containers for vegetable oil, grain and

meal; rail flatcars; sea and river vessels;

trucks; and purchase or construction of over-

land transshipment facilities allowing us to

smooth the connections between the Ukrain-

ian and EU railway. We would like not to over-

invest, but we must have plan B considering

the size of our own production. Needless to

mention the alternative export routes are a

way more expensive compared to the trans-

portation via Black Sea.

Even if the grain corridor remains functioning,

a big risk of destruction or severe damage

of our key port infrastructure still exists. We

have already observed missile attacks on

grain and vegetable oil assets in Mykolaiv

port. In that case, we may face an urgent

need to acquire some port facilities in neigh-

boring countries or in the other parts of

Ukraine.

Besides the investments in the inland logis-

tics and port infrastructure to maintain our ex-

port capabilities, we face another challenge –

securing the increased level of working

capital, since soaring soft commodity prices

and an extended logistics interval has had an

ongoing negative effect on our cash cycle.

In our situation the future is not clear, and, de-

pending on the abovementioned needs, we

might be in urgent search of capital to fi-

nance our survival. Given that the credit

market is closed to Ukrainian corporates at

the moment, equity funding might be the last

and only option available. Acting in advance,

the Board of Directors proposed shareholders

approve the creation of the authorized

share capital, which might be used at the

Board’s discretion to issue equity when such

need appears. As a Chairman of the Board, I

am thankful to all shareholders who sup-

ported such decision at the extraordinary

general meeting in September 2022.

In addition to the risks presented above, one

additional threat appeared just recently: roll-

ing blackouts across Ukraine caused by

the recent multiple Russian missile attacks on

the Ukrainian civil energy infrastructure. Rus-

sia destroyed materially the Ukrainian power

stations and damaged the electricity distribu-

tion infrastructure. It caused power supply

outages. Our most exposed business is

Oilseed Processing, which stands for over

70% of the Group’s total electricity consump-

tion and is our most important business line

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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nel.ua

Chairman’s Statement continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

today. The risk is partially mitigated by our re-

cent investments in co-generation heat and

power facilities, four of which had been al-

ready constructed at our crushing plants and

now allow to fully cover the consumption

needs of the respective oilseed processing

operations. Besides that, any massive power

shortages for railways, our export terminals or

key silos may disrupt the grain export capa-

bilities as well.

It is probably the first time in our history when

the harvest in Ukraine is not of prime im-

portance to us. The crop size is expected to

drop significantly given the numerous prob-

lems farmers faced, including the occupation

of territories and military actions, the lack of

crop inputs and working capital, a suboptimal

crop production technology applied, difficul-

ties with logistics and rising costs, and finally

the bad weather in September 2022. But do-

mestic supply will be strengthened by a huge

carry-over stock of grain and oilseeds, ex-

ceeding 20 million tons of six key commodi-

ties (corn, wheat, barley, sunflower, soybean

and rapeseeds), while the historical average

is closer to 5 million tons.

Many risks relate to our own farming busi-

ness. Crop yields will decline this year. We

have completed wheat harvesting, reaching

4.7 tons per hectare net yield, down 24% y-o-

y. Harvesting for sunflower is nearly com-

pleted, and preliminary net yield estimate is

2.5 tons per hectare, down 17% y-o-y. Corn

harvesting is substantially delayed due to

rainy weather, inability to harvest at nights

due to curfew in Ukraine, a deficit of trucks for

transportation of corn from field to silo, and

problems with silos’ intake caused by electric-

ity shortages and a deficit of natural gas to dry

corn. Our preliminary estimate for corn yield

is 8.7 tons per hectare, but it has the potential

to reduce further. What is more, if corn har-

vesting is moved to winter or even delays until

spring, we may face problems with quality,

which will be reflected in price discounts ap-

plied. Finally for the farming business, we are

far from making the final decision on our crop

mix for the next season, and when deciding

on that, we will be restricted by crop inputs

availability, mostly nitrogen-based fertilizers.

The overall operating environment does

not leave grounds for optimism as well.

Delays with VAT refund when exporting

goods result in the depletion of our working

capital. Also, discrepancy between the official

and market UAH/US$ exchange rates pushes

the origination market into shadow, and Ker-

nel being a public, transparent, and diligent

company loses competition for oilseed pro-

curement to those players who operate in the

grey market.

Update on the Strategy 2026

Last year we announced our new ambitious

growth Strategy 2026, but now we need to put

it aside and live under the new emergency

plan, the key objective of which is the preser-

vation of our operations and the survival of

the Company. We are no longer talking about

the growth and expansion, but rather about

maintaining the minimal required level of ex-

ports to cover our expenses, to pay salaries,

and to service debt. The appropriateness of

the Strategy 2026 will be further evaluated af-

ter the stabilization of the situation in Ukraine.

Sustainability progress

Amid the war in Ukraine, Kernel is demon-

strating adaptability to extreme challenges,

strengthening its leadership in ESG and con-

tinuing its support of the UN Global Compact

Ten Principles. Over the FY2022 we directed

US$ 26 million on social spendings, including

support of the defenders of Ukraine and hu-

manitarian aid, but also including social sup-

port of our own employees and social projects

in the rural regions of our operations.

The Russian war against Ukraine has shown

the world that there is an urgent necessity to

minimize dependency on fossil fuels and to

drive decarbonization – the climate actions

are becoming an integral part of energy pol-

icy. We as an agribusiness clearly under-

stand our role both in delivering goals of the

Paris Agreement and in strengthening na-

tional energy security. We are pleased to pre-

sent in the Sustainability section of this report

primary results of our “Climate Corporate

Governance and Low-Carbon pathway” pro-

ject, which we have been implementing in

partnership with EBRD and EY. Our work

within this project, such as evaluation of cli-

mate related risks and opportunities, im-

proved accounting of carbon footprint of our

operations and integration of climate agenda

in the corporate governance, formed the ba-

sis of our very first TCFD disclosure. This

year we disclosed information aligned with

the EU Taxonomy requirements for the first

time as well.

Board composition changes

Over the course of 2022, three Directors de-

cided to resign for different reasons. One of

them, being a citizen of Russia, resigned to a

conflict of interests, and other resigned due to

the inability of Kernel to secure a proper D&O

liability insurance policy, as provisioned in

service agreements with Directors. Instead,

three new Directors strengthened our team,

bringing aboard a proper set of skills and pos-

itively contributing to the Board’s diversity.

On behalf of the Board of Directors, I would

like to express the gratitude to our creditors

and shareholders for their support and to

thank the whole Kernel team for their dedica-

tion and efforts in steering the Group in these

very dark days for Ukraine and Kernel, and

above all wish them to stay safe and strong.

Besides, we are thankful to all countries

around the world which assist Ukraine in

withstanding the Russian aggression. And

our special heartfelt gratitude goes to the de-

fenders of Ukraine, the men and women, who

bravely protect our country and people.

Andrii Verevskyi

Chairman of the Board of

Directors, Founder

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Our Business Model

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Note 1: Excluding assets held for sale.

Own Farming

Procurement

Silo storage

Grain railcars

Export terminals

Oilseed processing

Bottled sunflower oil

Renewable energy

Oilseed Processing segment

• Leading sunflower oil producer (~5% of global production) and exporter (~8% of global exports)

• #1 bottled sunflower oil producer and marketer in Ukraine

• 3.5 million tons annual sunflower seed processing capacity

• Producer of renewable energy from biomass

Infrastructure and Trading segment

• #1 grain exporter from Ukraine with 15% share of country’s total grain export

• #1 grain export terminal operator with total annual capacity to transship 10 million tons of soft commodities

• #1 private inland grain silo network in Ukraine with 2.3 million tons of one-time grain storage capacity

• #1 private grain railcar fleet in Ukraine (3.2 thousand of accessible own railcars)

• Avere proprietary trading activities

Farming segment

• Leading producer in Ukraine operating 363 thousand hectares

of leasehold farmland

• Modern large-scale machinery, sustainable agronomic practices, cluster management system and export-oriented

crop mix

• Nearly 100% of sales volumes flows through our Infrastructure and Trading and Oilseed Processing segments,

earning incremental profits

Topping industry league tables in all segments

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Kernel at a Glance

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Map of the Group’s owned assets, as of November 2022

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Segment results summary

Revenue, US$ million

EBITDA, US$ million

Volume, thousand tons

EBITDA margin, US$/t

FY2021

FY2022

y-o-y

FY2021

FY2022

y-o-y

FY2021

FY2022

y-o-y

FY2021

FY2022

y-o-y

Oilseed Processing

1,747

1,681

(4%)

(70)

n/a

1,367

967

(29%)

(73)

n/a

Infrastructure and Trading

4,857

4,535

(7%)

359

237

(34%)

8,013

7,969

(1%)

(34%)

Farming

657

635

(3%)

461

219

(52%)

2,869

3,268

14%

920

440

(52%)

Unallocated corporate expenses

(65)

(166)

2.5x

Reconciliation

(1,666)

(1,519)

(9%)

Total

5,595

5,332

(5%)

806

220

(73%)

Note 4 FY2021 Revenue and EBITDA were corrected, as explained in detail in the notes to the consolidated financial statements.

Note 5 Physical grain volumes exported from Ukraine (ex. Avere) for Infrastructure and Trading.

Note 6 US$ per ton of oil sold for Oilseed Processing; US$ per ton of grain exported (ex. Avere volumes) for Infrastructure and Trading; US$ per hectare for Farming.

Note 1 Oilseed processing plants which were occupied by Russia during Feb 24

- Sep 13

, 2022. As of November 2022, plants remain inaccessible.

Note 2 The map does not reflect 134 thousand ha of leasehold farmland, which Group operated during FY2022, but decided to divest in April 2022. Such assets were classified as held for sale as of

30 June 2022.

Prykolotne

149

Kropyvnytskyi

439

Poltava

475

274

Ellada

Prydniprovskyi

TransBulkTerminal /

TransGrainTerminal

10,000

617

Starokostiantyniv

1,000

Bandurka

558

Black Sea Industries

620

Vovchansk

363

xxx

Sunflower seed crushing capacity, thousand tons per year

Grain transshipment capacity, thousand tons per year

50 km

Grain silos

Leasehold farmland bank

Export terminals

Refining and bottling facilities

Assets under construction

Plants under construction

Oilseed processing plants

Inaccessible plants

Damaged grain silos

Co-generation heat and power units

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Impact of War

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

From growth to survival in one day –

February 24

, 2022

Kernel People

The Group’s key priority is the safety and security of its employees

and their families. Since February 24

, the Group has been coordinat-

ing the evacuation of employees from regions engaged in active military

action and is covering associated relocation costs and providing addi-

tional assistance needed.

Since the beginning of the war, almost 1,300 Group’s employees

joined various defense units to protect Ukraine. Kernel is focused

on providing the necessary protective equipment and additional finan-

cial support to such employees and their families. The Group aims to

continuously support the employees until the cancelation of the martial

law in Ukraine. Additional financial aid provided by the Group to such

employees amounted to US$ 2.3 million. Conducting the evacuation

from the high-risk regions, the Group facilitated the relocation of 312

employees, directing US$ 538 thousands for such purpose.

Tragically, Kernel lost 14 employees, who died defending Ukraine.

US$ 400 thousand was provided to support their families. Regretfully,

51 employees were injured as a result of military actions.

Support for defenders and civilians

From the very first day of the full-scale invasion, the special humani-

tarian headquarter was created. The focus of its activities is to finance

and procure tactical equipment, medicine, food, and trucks for both ci-

vilians in need and the defenders of Ukraine.

Driven by such needs, Kernel has directed more than US$ 26 million

for these purposes in FY2022. Kernel has procured and delivered

23.5 thousand of units of tactical equipment, such as protective vests,

helmets, drones, communicational devices, and other tools, specifically

for the defenders of Ukraine. Alongside with the tactical equipment, the

Group provides the Armed Forces with what it the most demands – the

off-road vehicles, 577 of which have been already delivered to the front-

line.

In conjunction with the military applications, Kernel provided as a hu-

manitarian aid 5 thousand tons of grain, 1 million liters of sunflower oil,

and more than 1.8 million units of other food products, and over 800

thousand units of medicines and medical equipment for free.

Kernel will proceed in such directions with its humanitarian activities

until the victory of Ukraine in the war.

Kernel war-related losses

As of 30 June 2022

Note 1 Recognized war losses reflect the losses which were recognized in FY2022 financial statements, including losses in non-current assets, losses in inventories, other corporate losses, and

Group’s boosted social spending.

Note 2 Include goodwill and PP&E impairments caused by the war in Ukraine, impairments of assets held for sale, revaluation of assets.

Note 3 Include losses from the reduction of the net realizable value of inventories below costs, created reserves for inventories located at the territories occupied by Russia as of 30 June 2022,

write-off of the inventories which were destroyed by military actions.

Note 4 Include recognized losses mostly related to the Group’s liquidity management exercises, provisions created for accounts receivable, and VAT write-offs.

Note 5 Mainly constituted by the financial and material aid directed to support defenders of Ukraine and civilians who suffered from the war.

With the unprovoked, full-scale Russian inva-

sion of Ukraine, Kernel was forced to trans-

form from the absolute growth-oriented

leader to a company, the main priority of

which is to survive.

The Group’s survivorship strategy is based

on three main pillars: to save our employees,

to save our operational activity, to save our

country.

Recognized war-related losses

US$ 521 million

Russia’s biggest advance

reached during its invasion

of Ukraine.

US$ 219 million

Losses related to

non-current assets

US$ 162 million

Losses related to

inventories

US$ 26 million

Social spending

US$ 114 million

Other corporate losses

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Our Strategy 2026

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Owing to the war, Kernel needs to temporarily set aside its growth strategy and operate in survival

mode. Considering the uncertainty of the future availability of the maritime exports, as well as the busi-

ness environment in Ukraine, the Group has to put on hold its strategic initiatives and will revise its long-

term strategy once the degree of the uncertainty dwindles.

Prior to the war, the Kernel’s Strategic approach was as follows:

Captive supplies include feedstock originated via Kernel’s own farming operations, Open Agribusiness, pre-crop financing and pre-season forward contract pro-

grams with third-party suppliers.

• 6 million tons of oilseed pro-

cessing annually with 35% orig-

inated via captive supplies

• 15 million tons of grain export

from Ukraine annually with 50%

originated via captive supplies

• 4 million tons of in-house pro-

duction annually on 0.7 million

hectares of farmland under own

operations

Infrastructure and Trading

Farming

Oilseed Processing

• Contributing to relevant UN Sustainable Development Goals

• Supporting the objectives of the European Green Deal through rigorous climate action

• Acting as a sustainable farming ambassador in Ukraine through dissemination of resource-efficient, environ-

mentally, and socially responsible production practices among our partners in supply chains

• Providing fair and safe working conditions, proper resources, environment for learning, and equal opportunities

for self-realization to remain the ethical employer of choice

• Actively contributing to the improvement of local communities’ well-being

Strategic targets

Sustainability approach

We aim to sustainably increase the scale and efficiency of our low-cost business system to export annually 20

million tons of soft commodities from Ukraine by strategic acquisitions, fostering loyal relations with local farmers,

and constant development of our people.

Scale increase

• Acquisition via M&A / asset lease / tolling:

− 1.5 million tons of sunflower seed processing

− 5.0 million tons of grain transshipment capacity

− 0.2 million hectares of farmland

• Upscale of CRM and market intelligence system

•

Further expansion of the Open Agribusiness project

Strategic initiatives

Efficiency enhancement

• Processes automation and digitalization

• Labor productivity gains

• Adoption of innovative solutions in farming

• Electronic document flow

www.ker

nel.ua

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

Financial Performance in FY2022

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

FY2022 appeared to be the most turbulent season

in our history. Record profits in the first half of

the year, driven by supportive market fundamen-

tals and enhanced by results of our strategic invest-

ment initiatives, were offset by record losses in

the second half of the year, after Russia invaded

Ukraine on 24 February 2022.

The Group ended up FY2022 with EBITDA of US$

220 million, down 73% y-o-y, which is the combi-

nation of the highest ever semi-annual EBITDA

(US$ 608 million) in the first half of the year and the

all-time-high losses (US$ 388 million) in the sec-

ond half. This result also accounts for US$ 517 mil-

lion losses related to the reduction in the value of

inventory and non-current assets, as well as losses

arising from liquidity management exercises, both

caused by the war in Ukraine.

Together with US$ 26 million of social spending

(primarily stipulated by the war), the total cost of

the war we bore amounted to US$ 543 million. Fur-

thermore, the total financial impact of war includes

additional expenses caused by various war-re-

lated business disruptions, unearned profits

(both stemming from our regular operations and

from delayed commissioning of our new crushing

plant and co-generation heat and power facilities)

and extra CapEx related to de-bottlenecking of

new export routes alternative to Black Sea.

Segments performance was following a similar

pattern for each of our business line: very strong

contribution in the first half of the year (for Farming

– the all-time-high semi-annual result) and then the

loss-making H2 FY2022, caused by lack of sales

and massive war-related losses.

For the second time since FY2014, when Russia

annexed Crimea and occupied eastern regions of

Ukraine, that we ended the year with a negative

bottom line, this time US$ 41 million loss attribut-

able to the equity holders of Kernel, and again

because of the Russian aggression against

Ukraine.

The invasion started exactly at the peak of our

working capital cycle when we had the highest

seasonal (and historical) debt level of US$ 1.9 bil-

lion and record high commodity inventories of US$

0.9 billion. Luckily, we entered this turbulent time in

a relatively good financial shape, so we kept ser-

vicing our debt, but we were forced to negotiate the

postponement of the principal repayment with cred-

itors. The first such exercise resulted in the post-

ponement of principal repayments by 30 Septem-

ber 2022, and negotiations to prolong that period to

30 June 2023 are currently undergoing and are

close to successful completion. As of the day of this

report, we obtained waivers to extend the terms

of repayment of the principal of US$ 627 million

with the lenders and waiving of the debt covenants

and some other conditions by 30 June 2023. For

the debt liabilities totaling US$ 246 million we are

in the process of formalizing similar waivers.

While we completed one of the most challenging

years in our history, perspectives for the future

remain unclear and will heavily depend on the out-

come of the war in Ukraine and Group’s ability to

export products via the Ukrainian Black Sea ports.

Revenue

US$ 5,332 million

-5% y-o-y

EBITDA

US$ 220 million

-73% y-o-y

Mixed results with foggy prospective

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Financial Performance in FY2022 continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Income statement highlights

In FY2022, Kernel achieved the revenue of

US$ 5,332 million, down 5% y-o-y on the back

of lower sunflower oil and meal sales volumes

due to the difficulties with exporting produce

from Ukraine in March-June 2022.

Kernel recognized a US$ 13 million gain from

the net change in fair value of biological as-

sets and agricultural produce in FY2022,

compared to a US$ 133 million gain a year

ago. This component included a gain from re-

valuing crops in the fields to fair value less

costs to sell as of 30 June 2022 and expens-

ing the respective gain booked a year earlier.

Cost of sales in FY2022 contracted by 3% y-

o-y, to US$ 4,692 million, and includes US$ 98

million loss from reduction of net realizable

value of inventories below cost (“NRV loss”).

Adjusting for such loss, the cost of sales de-

clined by 5% y-o-y, in line with the revenue re-

duction.

Consequently, the gross profit for the period

contracted by 28% y-o-y, totaling at US$ 652

million. Notably, Q3 FY2022 result ended up

at just US$ 27 million, and in the last quarter

of the reported period cost of sales exceeded

revenue by US$ 51 million.

Other operating income settled at US$ 64

million, comprising primarily gains on con-

tracts wash-out and stock-take, related mostly

to Avere trading operations.

FY2021 figures were corrected, as explained in detail in the notes to the consolidated financial statements.

It is necessary to flag that in accounts pre-

sented we recognized additional payroll re-

lated expenses which reflect the liabilities of

Kernel Holding S.A. to purchase shares of

Avere from subsidiary’s minority sharehold-

ers. Such liabilities arose from put option

rights granted to Avere minority shareholders

by Avere shareholder agreement at the price

stemming from net assets value of Avere (as

also explained in detail in Note 5 to our finan-

cial statements). For each reported period,

such liabilities in essence correspond to the

net profit attributable to Avere minority share-

holders and previously recognized as part of

the “net profit attributable to non-controlling in-

terest”. As a result, such liabilities are now pre-

sented as payroll related expenses within our

general, administrative and selling ex-

penses, and the net profit attributable to non-

controlling interest excludes any balances

with Avere minority shareholders. It is worth

mentioning, that the Company acquired 40%

Avere minority stake in March 2022, so there

would be no such liabilities going forward. An-

yway, the reduction of Avere earnings in

FY2022 vs FY2021 and the resulting decline

in the corresponding payroll related expenses

was a major factor behind the reduction of

Group’s general, administrative and selling

expenses in FY2022 by 28% y-o-y, to US$

230 million.

Other operating expenses amounted to US$

45 million, reflecting losses incurred as a re-

sult of Group’s operations with securities and

derivatives.

Additionally, the net impairment losses on

financial assets reached US$ 33 million, pri-

marily related to provisions created under

Group’s accounts receivable.

Reflecting the direct impact of war, Kernel rec-

ognized the loss on impairment of assets of

US$ 317 million in FY2022, comprising the im-

pairment of PP&E, goodwill, intangible assets,

assets held for sale; write-off of inventories

destroyed; allowance created for inventories

located at the temporary occupied territories,

and liquidity management exercises, im-

pacted by the consequences of the war in

Ukraine, among other things.

Subsequently, operating profit plummeted

by 87% y-o-y, to US$ 91 million.

Finance costs in FY2022 curtailed by 12% y-

o-y, to US$ 131 million, primarily driven by the

reduced coupon payments following the re-

demption of our 2022 bonds. Such savings on

interest were partially offset by increased in-

terest payments on bank debt as a result of

the postponement of the seasonal bank loans

principal repayment due to strained situation

with sales and liquidity after 24 February

2022. Together with that, the Group generated

US$ 11 million finance income in FY2022.

The Group also recognized a US$ 10 million

foreign exchange gain following the Ukrain-

ian hryvnia depreciation against US$ over the

reported period.

Other expenses, net, amounted to US$ 25

million, mostly driven by all-time high social

spending of US$ 26 million, but also reflects

US$ 3 million gain on the disposal of PP&E.

…………………………………………………………………………

Kernel’s EBITDA split

US$ million

(44)

(51)

(59)

(65)

(166)

182

134

461

219

101

106

216

359

237

109

152

(70)

223

346

443

806

220

FY2018 FY2019 FY2020 FY2021 FY2022

Oilseed Processing

Infrastructure and Trading

Farming

Unallocated corporate expenses

………………………………………………………………………………………………………………………………………………………….

Income statement highlights

US$ million

FY2021

FY2022

y-o-y

Revenue

5,595

5,332

(5%)

Net IAS 41 gain

133

(91%)

Cost of sales

(4,822)

(4,692)

(3%)

Gross profit

906

652

(28%)

Other operating income

111

(43%)

Other operating expenses

(45)

n/a

Net impairment losses on financial assets

(5)

(33)

Loss on impairment of assets

(5)

(317)

70x

General, administrative and selling expenses

(318)

(230)

(28%)

Operating profit

689

(87%)

Finance costs, net

(142)

(119)

(16%)

Foreign exchange gain(loss), net

(6)

n/a

Other (expenses), net

(3)

(25)

7.7x

Profit / (loss) before income tax

538

(43)

n/a

Income tax (expenses) / benefit

(32)

n/a

Profit / (loss) for the period

506

(41)

n/a

Attributable to equity holders of Kernel Holding S.A.

513

(41)

n/a

Non-controlling interest

(7)

0.4

n/a

EBITDA

806

220

(73%)

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Financial Performance in FY2022 continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

With the loss before income tax generated,

Group recognized corporate income tax

benefit of US$ 3 million in FY2022 and ended

the year with US$ 41 million net loss attribut-

able to shareholders of Kernel Holding

S.A. Considering the financial results

achieved, uncertainties around the outcome of

the war in Ukraine, strained liquidity position,

ongoing negotiations with Group’s creditors

on the postponement of the debt principal re-

payment, and the presence of restrictive cov-

enants in the additional agreements already

signed with the lenders, the Board of Directors

recommended the general meeting of share-

holders to declare a dividend at nil for the year

ended on 30 June 2022.

Cash flow highlights

In FY2022, Kernel generated operating profit

before working capital changes of US$ 677

million, down 4% y-o-y, reflecting a strong pre-

war performance and undermined profitability

after the war started in Ukraine.

Working capital changes resulted in US$

793 million cash outflows in FY2022, stem-

ming primarily from the accumulation of inven-

tories by February 2022 at peak of Group’s

working capital cycle, which Kernel was not

able to sell thereafter due to inability to export

goods via the Ukrainian Black Sea ports. The

amount also includes US$ 32 million advance

payment to acquire the 40% stake in Avere

from Avere minority shareholders.

Net interest paid in FY2022 amounted to US$

119 million, down 6% y-o-y. Accounting also

for U$ 70 million income tax paid, Kernel

ended up with US$ 305 million of cash used

in operating activities.

Net cash used in investing activities totaled

at US$ 294 million in FY2022, primarily com-

prising US$ 120 million investments in PP&E

and US$ 158 million net cash outflow

emerged from the operations with intangible

and other non-current assets, related in its

majority to allocation of the part of the liquidity

available to crypto assets in March 2022.

Within the financing activities, US$ 131 mil-

lion were distributed to shareholders by Feb-

ruary 2022 in a form of dividend based on

FY2021 results (US$ 34 million) and through

share buy-back transactions for the total value

of US$ 97 million. The Group purchased in to-

tal 6,602,000 shares of Kernel Holding S.A.,

representing 7.86% of total shares issued, to

be held as a treasury stock.

The debt management transactions during

FY2022 resulted in US$ 619 million cash in-

flow, mostly driven by the seasonal working-

capital-related accumulation of debt by Febru-

ary 2022, which was not repaid as usual (by

June) due to difficulties with selling the ready

produce after the Russian invasion of Ukraine.

The total cash generated by financing activi-

ties amounted to US$ 476 million. Over the re-

ported period, the Group’s cash position de-

creased by US$ 126 million.

Debt overview

The Group’s debt liabilities increased by

37% over FY2022, to US$ 1,953 million as of

30 June 2022. The growth was primarily at-

tributable to the spike in the short-term debt

related to the working capital financing, which

reached its seasonal peak during winter 2021-

2022 and was not repaid in line with its typical

schedule by summer 2022. In December

2021, the Group also completed the early re-

demption of the remaining US$ 213 million of

its US$ 500 million 2022 bonds outstanding,

reducing the total amount of Eurobonds out-

standing to US$ 595 million.

Due to the fact that the Group did not have an

unconditional right to defer settlement for 12

months or longer with respect to its bank facil-

ities as at 30 June 2022, the US$ 198 million

balances of long-term bank borrowings and

US$ 595 million of Eurobonds outstanding

were reclassified as short-term as of 30 June

2022. Notwithstanding such classification,

management notes that, in view of the effec-

tive waivers from banks that were in place as

of 30 June 2022, cross-acceleration events of

default under the bonds were not triggered as

at such date, and the Group remained other-

wise in full compliance with the terms of its

bonds.

Consequently, the Group’s net debt climbed

by 78% y-o-y, to US$ 1.5 billion at the end of

FY2022.

………………………………………………………………………………………………………………………………………...................

Liquidity positions and credit metrics

US$ million, except ratios

30 June 2021

30 June 2022

y-o-y

Short-term interest-bearing debt

1,101

1,050x

Long-term interest-bearing debt

228

(100%)

Lease liabilities

324

240

(26%)

Eurobonds

806

595

(26%)

Debt liabilities

1,410

1,935

37%

Cash and cash equivalents

574

448

(22%)

Net debt

836

1,488

78%

Commodity inventories

285

892

3.1x

of which sunflower oil and meal

205

207

1.0x

Sunflower seeds

325

7.6x

Grains and other commodity inventories

360

9.5x

Adjusted net debt

551

596

Shareholders’ equity

1,946

1,683

(14%)

Net debt / EBITDA

1.0x

6.8x

+5.7x

Adjusted net debt / EBITDA

0.7x

2.7x

+2.0x

EBITDA / Interest

5.7x

1.8x

-3.8x

………………………………………………………………………

Kernel Eurobonds mid-YTM

Source: Bloomberg

10%

20%

30%

40%

50%

60%

70%

Sep 21

Oct 21

Nov 21

Dec 21

Jan 22

Feb 22

Mar 22

Apr 22

May 22

Jun 22

Jul 22

Aug 22

Sep 22

2024 6.5% bond

2027 6.75% bond

………………………………………………………………………

Working capital and debt position

US$ billion

“Working Capital”, “Net Debt” and “Commodity in-

ventories” definitions as described in section Alterna-

tive Performance Measures.

0.0

0.5

1.0

1.5

2.0

2.5

FY2018 FY2019 FY2020 FY2021 FY2022

Working Capital

Net Debt

Commodity inventories

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Financial Performance in FY2022 continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The commodity inventories

balance as of

30 June 2022 totaled to US$ 892 million, up

3.1x y-o-y, covering 60% of net debt outstand-

ing. The growth is caused by the seasonal ac-

cumulation of grain and sunflower seeds by

February 2022, which was not sold or pro-

cessed thereafter due to disruptions in export

activities. The commodity inventories ac-

counted for 94% of all inventories as of 30

June 2022. The value of the commodity

inventories was reduced by US$ 184 million of

inventory-related losses: the reduction of net

realizable value of inventories below cost,

write-off of destroyed inventories, allowance

created for inventories located at territories

temporarily occupied by Russia, and losses

related to the deterioration of goods located at

vessels stuck in the ports.

The net debt adjusted for commodity inven-

tories settled at US$ 596 million as of FY2022

end, adding just US$ 45 million over the re-

ported period.

The key leverage metrics as of 30 June 2022

ended up at 6.8x Net debt / EBITDA, 2.7x Ad-

justed net debt / EBITDA, and 1.8x EBITDA /

interest coverage, representing the worst set

of such metrics as of 30 June since the Com-

pany being listed on the Warsaw Stock Ex-

change in 2007.

In April 2022, S&P downgraded Kernel to

“CC”, one notch below the Ukrainian sover-

eign. Kernel currently also keeps the “CC“ rat-

ing assigned by Fitch.

Commodity inventories are inventories such as corn, wheat, sunflower oil, and other products that were easily convertible into cash before the Russian invasion of Ukraine given

their commodity characteristics, widely available markets and the international pricing mechanism. The Group used to call such inventories as “Readily marketable inventories”,

but after the beginning of the war in Ukraine the Group faced difficulties selling such inventories, and therefore such inventories cannot any longer be considered as readily

marketable.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

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Oilseed Processing

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At the beginning of FY2022, Ukraine produced a

record sunflower seeds harvest of 16.9 million tons,

up 24%, substantially narrowing the gap between

crushing capacities in Ukraine and oilseeds crop

size. Sunflower oil prices had been breaking multi-

year highs. We expected to crush 3.8 million tons

of sunflower seeds in FY2022 and achieved the

highest for last six years crushing margin in Q2

FY2022. The season looked promising.

But after the Russian invasion of Ukraine on 24

February 2022, the industry faced huge challenges.

The Black Sea ports, which handled 85-90% of the

country’s total pre-war sunflower oil export, became

not accessible for export operations. With disrupted

logistics, many oil-extraction plants ceased opera-

tions, being unable to sell the produce.

With the supply shock in the second half of the sea-

son, the worldwide sunflower oil prices skyrock-

eted, since Ukraine historically produced 30-35% of

global sunflower oil and stood for 45-55% of world’s

exports. At the same time, local sunflower seed

prices plummeted. With these two impacts, crush

margins soared, even despite the largely increased

transportation costs. Players able to arrange proper

logistics were capturing strong margins.

Besides re-building the logistics for sunflower oil,

the same puzzle should also be solved for sun-

flower meal, as its sales are vital for overall profita-

bility of sunflower seed processing. What is more,

sunflower meal has a relatively short shelf life, and

a rapid switch to alternative export routes required

virtuoso skills from our team.

Notwithstanding that, the oilseed processing busi-

ness in Ukraine is better positioned to deal with

logistics restrictions than the local grain export com-

plex, as 1) much lower volumes of goods are to be

moved; 2) higher-added-value product is to be

moved; 3) existing crush margins allow to absorb

higher logistic costs.

What is more, farmers in Ukraine start switching to

sunflower from corn, as the former requires less fer-

tilizers to be applied, and less natural gas to be con-

sumed when drying the crop at silos. It will positively

contribute to the domestic supply of oilseeds for the

next harvest, pushing crushing margins up.

The Grain Corridor will be detrimental for Oilseed

Processing segment performance in FY2023. If the

Black Sea ports are not functioning, there still will be

likelihood for this business to remain profitable, but

not everybody on the market will be able to capture

such profits.

2.2 million tons of

oilseeds processed in

FY2022

EBITDA

(before unallocated head office expenses)

US$ (70) million

Revenue

US$ 1,681 million

-4% y-o-y

Maintaining margins in challenging times

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Market overview

Historically, there were two determinants ma-

terially affecting Kernel’s oilseed processing

business: 1) supply-demand balance on еру

Ukrainian sunflower seed processing market;

and 2) the global sunflower oil prices. While

the first factor specifies a split of margins be-

tween farmers and processors in Ukraine, the

second is important for the combined earn-

ings of local sunflower seed farming and pro-

cessing.

The war in Ukraine has extended the list with

the new factor: 3) logistics diversification.

Facing the restricted exports, due to the una-

vailable seaports and infrastructurally unde-

veloped alternatives, most of the crushing

plants in Ukraine suspended processing oper-

ations, which, in turn, distorted the supply-

demand balance of sunflower seed, driving

its price on the local market down. Mounting

costs of this new logistics eroded margins,

while skyrocketing global sunflower oil prices

allowing those able to export to remain profit-

able.

Supply-demand balance

Historically, sunflower seed processing in

Ukraine is heavily localized: nearly all sun-

flower seeds harvested by local farmers were

processed domestically. This trend changed

in FY2022, when almost 1.6 million tons of

sunflower seeds were exported. High ex-

port volume is also expected to remain in

FY2023. While combined profitability of farm-

ers (the producers of seeds) and crushers (the

processors of seeds) is determined by global

prices, the exact split of earnings between

farmers and crushers depends on the supply

of seeds (the harvest) and the demand for

seeds (the processing capacities).

In the pre-war period of FY2022, annual sun-

flower seed processing capacities in Ukraine

increased to 20.8 million tons (including the

capacities expansion for some players and re-

estimation of the existing capacities for sev-

eral other players). At the same time, the sun-

flower seeds harvest in the season peaked to

16.9 million tons, increasing by 24% y-o-y,

driven by favorable weather conditions and

the highest ever acreage under sunflower. As

a result, the gap between crushing capacities

and the supply of seeds had shrunk, improv-

ing the crushing margin over the season.

Due to the full-scale war in Ukraine, the plants

with combined crushing capacity of 7.1 million

tons (34% of the ‘pre-war’ capacities) ended

up on territories either occupied by Russia or

close to the frontline, and thus ceased opera-

tions. Moreover, a substantial part of the

Source: USDA, September 2022

accessible processing plants has partially or

entirely suspended operations due to the lim-

ited exports.

The reduction in operating capacities has sub-

stantially plummeted the supply-demand dis-

balances, directing the domestic seed prices

in further decline.

Global sunflower oil prices

Sunflower oil is the fourth-largest vegetable

oil in terms of global consumption, with

8.9% market share in the 2021/22 season.

The main demand on the global market

comes from EU, India, and China, together

comprising 42% of global imports, while the

largest global exporter is Ukraine with 41%

share in the total exports. In 2021/22 season,

4.5 million tons of sunflower oil were exported

from Ukraine, 17% down y-o-y

With the heightened volatility in the global

commodity markets, sunflower oil price

showed tremendous growth in FY2022,

reaching the new records. Price dynamics fol-

lowed four clearly observable trends:

• Early FY2022 had begun with the gradual

recovery of sunflower oil prices after their

tumble in June, which was driven by record

harvest entering the markets from the Black

Sea, and in the backdrop of US FED com-

mitment to raise interest rates.

• During the first half of the observed period

the rising trend had been continuing, the

market proceeded to gradually recover, and

slightly began to price the risks of a possible

conflict among Russia and Ukraine.

• On the 24

of February 2022, a Russian

full-scale invasion of Ukraine threw global

commodity markets in turmoil. In the early

March 2022 the sunflower oil price peaked

at US$ 2,220 per ton, surging by 44% y-o-y

reflecting the abrupt loss of access to sun-

flower oil coming from the Black Sea.

• In April – June 2022, limited sunflower oil

supply due to difficulties with the export of

the Ukrainian produce via the Black Sea

and sanctions imposed on Russia had been

keeping sunflower oil prices high until June,

when slight decreases in prices occurred

mainly driven by the market expectations

from the “Grain deal” to partially unlock the

Ukrainian exports and aggressive FED

monetary policy.

With such changes, the market during the war

eventually switched to low-volume high-mar-

gin environment.

………………………………………………………………………...

Sunflower oil and sunflower seed prices

US$ per ton of unrefined oil sold in bulk

US$ per ton of sunflower seeds

Source: APK-Inform

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Jul 20 Jan 21 Jul 21 Jan 22 Jul 22

Sunflower oil, Rotterdam FOB

Sunflower seed, Ukraine EXW

FY2022

……………………………………………………………………………………

Volumes of sunflower oil exports from

Ukraine in Q4 FY2021 and Q4 FY2022

thousand tons

Source: Agrochart, State Statistics Service of Ukraine

391

502

325

134

193

286

April May June

FY2021 FY2022

……………………………………………………………………………………

Processing capacities as at FY2022

million tons

Source: Kernel’s estimates

18%

19%

24%

34%

Kernel Multinationals MHP

Local big Local small

20.8

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Our business model

Market leader in oilseed processing

Kernel is the leading global sunflower oil pro-

ducer and exporter. In FY2022, the Group

kept 5% of global sunflower oil production and

~8% of global export

Asset base

Kernel owns eight oilseed processing plants

in Ukraine with a total annual capacity to pro-

cess 3.5 million tons of sunflower seeds. Con-

sidering also the tolling agreement on the

Chuhuiv crushing plant, at the beginning of

FY2022, the Group managed the combined

capacity of 3.7 million tons, which corre-

sponded to 18% of the country’s total indus-

trial crushing capacity.

At the beginning of the war in February 2022,

as well as at the end of the reported period,

two of Kernel’s oilseed processing plants were

occupied by Russia, reducing the total crush-

ing capacity of the Group to 3.0 million tons.

Most of the Group’s crushing plants are multi-

seed and switchable to soybean or rapeseed

processing if necessary. The assets are capa-

ble of operating year-round, with only a month

of maintenance required, usually in summer.

All the assets are located across the sun-

flower seed production belt in Ukraine in close

proximity to farmers, ensuring the high utiliza-

tion rates and profitability, as the low density

of sunflower seed negatively impacts the eco-

nomics of long-distance seed transportation.

The Group’s crushing plants are modern

USDA, Kernel analysis.

facilities constructed or fully renovated re-

cently, granting Kernel processing cost ad-

vantages over most of the other players. The

scale also allows to benefit from a more effi-

cient usage of the countrywide origination net-

work and allocation of overheads over larger

volumes.

Since February 2019, Kernel has also owned

5.85% stake in ViOil – one of the largest inde-

pendent sunflower oil producers in Ukraine. A

customary shareholder agreement in relation

to ViOil grants certain rights, gaining a favora-

ble position to further increase our stake.

Origination and production

The vast majority of processed sunflower

seeds is originated from third-party farmers,

while only 17% of volumes processed in

FY2022 were produced by our own farming

business.

The sunflower seed processing yields two ma-

jor products: sunflower oil and meal, which are

exported globally mostly through third-party

terminals, with only a minor portion trans-

shipped through the Group’s TransBulkTermi-

nal. Sunflower seed husk, a biomass, is either

burned in-house to generate steam for pro-

duction purposes, or pelletized and sold to

third parties.

Four of the Group’s plants are already

equipped with the co-generation heat and

power units, burning all the husk produced

and generating electricity. Such facilities, with

a 44.2 MW installed turbine capacity, supply

the electricity generated to the national grid. A

state-owned enterprise “Guaranteed Buyer” is

……………………………………………………………………………………

Sunflower oil sold in bulk destinations FY2022

thousand tons

17%

31%

14%

28%

10%

China India Iraq Europe Other

849

……………………………………………………………………………………

Bottled sunflower oil destinations FY2022

thousand tons

39%

30%

10%

11%

Ukraine Europe Middle East

CIS Asia Other

118

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…

Sunflower seed crushing process

Refining &

bottling

Pressing &

extracting

Dehulling &

filtering

Burning…

Sunflower seeds

(1,000 kg)

Dehulled

kernel

Bottled sun-

flower oil

Crude sunflower oil

(440 kg)

Sunflower Meal

(390 kg)

Electricity for sale

(up to 180 kWh)

Husk

(160 kg)

… or

selling

An edible oil rich with Omega-3 and Omega-6 ac-

ids. A traditional vegetable oil of choice for many

regions of the world, sunflower oil is used only for

culinary purpose, primarily for salad dressing and

frying.

A protein-rich livestock feed, used for compound feed

production for hog, cattle, and poultry industries

across the world. It is the third most important meal

globally after soybean and rapeseed.

Electricity is sold to the national grid as renewable

energy

A biomass used to produce steam and energy on

our plants, but can also be pelletized and sold to

third parties

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obliged to buy all such renewable energy pro-

duced at the feed-in tariff fixed in EUR by

2030. Some co-generation facilities can also

supply power directly to the crushing plant.

Up to 12% of produced crude sunflower oil

historically is further refined and bottled on

Poltava and Prykolotne plants, granting incre-

mental margin for such higher added value

product. Since 24 February 2022, the Group

does not conduct operations on Prykolotne

plant in Kharkiv region.

Approximately 8% of oilseeds processed in

FY2022 corresponds to high-oleic sunflower

seeds, which historically used to provide

higher margin than ordinary seeds.

Sales

Most sunflower oil produced by Kernel plants

(79% in FY2022) is sold on the FOB basis to

our Avere subsidiary, applying the arm’s

length principle. Avere then sells it on the CIF-

Source: MPP

basis in export countries earning extra trading

margin, which is accounted in our Infrastruc-

ture and Trading segment.

In addition to marketing sunflower oil pro-

duced by the Group’s plants, Avere also buys

sunflower oil from other producers in Ukraine,

consolidating exports from Ukraine under its

umbrella and building up the scale in global

sunflower oil trading.

Sunflower oil is mostly sold through forward

contracts. Due to the difficulties with export,

we had contractual commitments to sell only

51 thousand tons of sunflower oil for US$ 73

million as of 30 June 2022.

Markets and customers

Oilseed processing is an export-oriented busi-

ness. Over 85% of produced sunflower oil is

exported in bulk, with China, India, Europe

and Iraq being our key markets. Kernel’s cus-

tomers mainly include processors of soft

commodities who refine and bottle sunflower

oil, and big international traders. The largest

customer in FY2022 was the Etihad Food In-

dustries refinery in Iraq with a 14% share in

our total bulk oil sales. Other big customers

include Adani Wilmar, Kaleesuwari, Cargill,

and ADM taking 7%, 6%, 6%, and 5% of our

bulk oil sales volumes, respectively.

Up to 12% of crude sunflower oil produced on

the plants is further refined and bottled. In

FY2022, 61% of the produced bottled oil was

exported, mostly to Europe, Middle East, for-

mer CIS, Asia, and Africa both under the Ker-

nel brands and private labels. The Group has

31% share in total refined bottled sunflower oil

export from Ukraine, supplying products to

such international retail chains as METRO,

Auchan, Walmart, Maxima, and others.

39% of produced bottled oil in FY2022 was

sold in Ukraine to 20 nationwide retailers and

29 regional distributors, comprising 80% and

20% of domestic sales, respectively, under

well-recognized brands “Schedryi Dar”, “Sto-

zhar” (both in TOP-100 brands in Ukraine

“Chumak”, and others.

Key developments

The war in Ukraine and related business dis-

ruptions were main hardships impacting the

segment performance in FY2022.

Pre-war progress

At the inception of the season, the market fun-

damentals had been supportive for Kernel.

Ukraine delivered a record harvest of sun-

flower seeds, and global prices were rising.

The only issue was the reluctance of local

farmers to sell crops, as they were expecting

a further price increase. It translated into

slower than expected procurement of oilseeds

at the beginning of the season. Notwithstand-

ing, we generated the largest in the last 6

years EBITDA for the first half of the season,

and were working full speed to commission

the largest in Ukraine oilseed processing plant

and finalize our investments in the renewable

energy projects.

War impact

When the war emerged, we immediately

stopped all our crushing operations, leaving

only the refining and bottling activities func-

tioning. We started to gradually resume oper-

ations only in April-May 2022. As a result, our

processing volumes on Q4 FY2022 declined

by 75% y-o-y, to 157 thousand tons of sun-

flower seeds.

Besides, we lost access to two Group’s

crushing plants occupied by Russia in

…………………………………………………………………………………………………………………………………………………

Construction site of Kernel new oil-extraction plant in Western Ukraine, February 2022.

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Kharkiv region with combined annual crushing

capacity of 0.5 million tons of sunflower

seeds, one of which has also the refining and

bottling capacities. The assets suffered from

damages caused by military actions. Many

employees were relocated and employed at

the other Group’s plants. We also ceased toll-

ing operations on Chuhuiv oil-extraction plant

in the same region, as the asset was inacces-

sible due to its high-risk location. As a result,

the maximum accessible crushing capacity of

the Group reduced to 3 million tons of oilseeds

per year.

Since the beginning of the war, the Ukrainian

Black Sea ports were unavailable for export

operations. As almost all our export before the

war was done via such ports, we lost our ma-

jor part of sales channels and were forced to

cancel sales contracts for a total value of

US$ 786 million, declaring force-majeure.

Consequently, we entered the war period with

a large stock of unhedged inventories.

Establishing new logistics routes was a chal-

lenging task. While railway logistics is better

positioned to accommodate the high export

volumes compared to trucks, the key problem

appeared to be a different gauge of railways

in Ukraine and in neighboring EU coun-

tries: 1520 mm vs 1435 mm.

A part of sunflower oil and meal stock was de-

stroyed, and a part was located on the occu-

pied territories. Moreover, sunflower meal is a

perishable product, and a lot of that was

spoiled. Finally, being unable to export prod-

ucts and facing the growing logistic costs and

declining local prices of sunflower seeds and

oil, we recognized losses due to the reduction

of the net realizable value of such inventories

below cost. For the year ending 30 June 2022,

we recognized a respective cumulative inven-

tory-related loss of US$ 91 million. Besides

that, the impairment of goodwill and PP&E to-

gether with the revaluation of the assets at-

tributable to the segment resulted in US$ 88

million loss related to non-current assets

during the reported period.

Additionally, we were forced to postpone our

historical CapEx program. In FY2022 we

expected to commission the largest oilseed

processing plant in Ukraine having capacity to

process 1 million ton of sunflower seeds per

year, with total expected investments of US$

279 million. On top of that, we were at the final

stage of completion of our investments in the

renewable energy projects. But the uncer-

tainty related to the outcome of the war and its

consequences, liquidity situation, and difficul-

ties with engaging suppliers at the final stage

of the projects in the circumstances of the

martial law in Ukraine resulted in freezing the

projects for almost a year. The budget for in-

vestments is likely to be revised to adjust for

elevated costs of construction materials re-

flecting mounting worldwide inflation.

Our response to war

After the first shock, our team immediately

switched to stabilizing operations.

In late April, we re-launched crushing oper-

ations on our Poltava plant, as refining and

bottling capacities on this plant allowed to sell

oil locally. In parallel, we started to work out

new sales channels, but only in late May we

were confident enough to launch oilseed pro-

cessing at two other plants, despite occa-

sional shutdowns from time to time. The fourth

plant was added to operations in June, and

two others followed in August-September,

when the grain corridor started functioning.

While the last two plants were recently de-oc-

cupied, we still have limited access to those

facilities.

While developing alternative export routes

able to accommodate Ukrainian export of sun-

flower oil is relatively easier than for grain,

shipment of sunflower meal is faced with the

same problem as grain.

We secured some sunflower oil and meal

transshipment capacities in the Ukrainian port

Reni at the Danube river and at western bor-

der of Ukraine. Observing the skyrocketing

freight costs and deficit of fleet, we decided to

invest in barges, coasters, and handy-size

carriers for grain and oil to make exports via

Danube river more efficient. First such invest-

ments were already completed in summer

2022.

In FY2022, the headcount in the Oilseed Pro-

cessing segment increased 2% y-o-y, reflect-

ing the ‘pre-war’ staff hiring for our new crush-

ing plant. No war-related stuff cuts were intro-

duced during FY2022.

Performance overview

In FY2022, Kernel’s oilseed processing vol-

umes reduced by 31% y-o-y, to 2.2 million

tons, mostly due to war-related disruptions of

exports in the second half of the reporting pe-

riod. Average capacity utilization ended up at

58%, contrary to 86% in FY2021. The market

share of Kernel in Ukraine decreased from

24% of all processed sunflower seeds in

FY2021 to estimated 20% in FY2022.

Sunflower oil sales mirrored the decline in pro-

cessing, getting reduced to 1.0 million tons in

FY2022, down 29% y-o-y. Of that, bottled sun-

flower oil sales amounted to 128 thousand

tons, down 21% y-o-y.

……………………………………………………………………………………

Oilseed Processing segment EBITDA

109

152

(70)

100

(73)

FY2018 FY2019 FY2020 FY2021 FY2021

EBITDA,US$ million

EBITDA margin, US$ per ton of oil sold

……………………………………………………………………………………

Oilseed processing volumes

thousand tons

542

419

629

663

482

911

941

951

1,001

985

849

908

941

902

563

834

896

916

617

157

3,136

3,164

3,436

3,183

2,187

FY2018 FY2019 FY2020 FY2021 FY2022

Q1 (ends 30 Sep) Q2 (ends 31 Dec)

Q3 (ends 31 Mar) Q4 (ends 30 Jun)

……………………………………………………………………………………

Kernel bottled oil selected customers

……………………………………………………………………………………

Kernel bottled oil core brands

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In FY2022, we recognized our first-ever an-

nual loss at the EBITDA level, totaling US$ 70

million. The primary reason is the tremendous

US$ 185 million losses in value of segment in-

ventories of non-current assets. Making ad-

justments for such losses, the business gen-

erated quite a decent US$ 115 million

EBITDA, but such result was secured primar-

ily by the strong pre-war performance.

EBITDA per ton of oil sold in FY2022 resulted

in a loss of US$ 73, as compared to US$ 37

profit for the previous year.

FY2023 outlook

While for obvious reasons we cannot provide

any guidance for the new season, we would

like to highlight some important performance

drivers to follow in FY2023.

Exports

As for each agricultural business, with Ukraine

being at war, any further performance of the

oilseed processing segment is contingent on

the Ukrainian deep seaports’ availability for

the exports. The latter, in turn, relies on the

‘Grain deal’ signed by Ukraine, Turkey, and

UN in late July 2022 with the expiration date

set for November 2022. Without its prolonga-

tion, the maintaining exports at its historic lev-

els will be impossible, and we will face a need

of new CapEx targeted at expanding the in-

land export logistics as much as possible. It

cannot fully solve the bottleneck problem.

Some relief may come from the margin side,

considering the soaring global sunflower oil

prices and plummeting local feedstock prices.

Crushing plants

Our crushing capacity will stay at 3 million

tons, as re-integration of 2 plants in Kharkiv

region does not seem feasible in the nearest

future. These assets are forced to deal with

recurring shelling attacks and workforce short-

ages. The tolling “take-or-pay” agreement for

operations at Chuhuiv crushing plant was not

extended for FY2023.

In FY2023 we aim to commission our fifth

co-generation heat and power facility with

21 MW installed electricity generation capac-

ity. In current circumstances the project is of

strategic importance for us, as it contributes to

the energy security for our business and for

Ukraine. The sixth CHP, 6 MW located at our

Vovchansk plant, is not likely to be commis-

sioned in the near future as the asset is lo-

cated very close to the border with Russia.

Commissioning the seventh CHP, 22.5 MW at

our new plant in Starokostyantyniv, will de-

pend on the overall progress with the crushing

plant construction.

Provided grain deal remains in place, we may

face another problem: tough supply of sun-

flower seeds in new season. According to

our estimates, the harvest is expected to de-

cline by 30% y-o-y. But another important fac-

tor to follow will be the export of sunflower

seeds. Historically, it hardly reached 0.2 mil-

lion tons per annum, but in 2021/22 season it

spiked to 1.6 million tons and is likely to ex-

ceed this number for FY2023. Local crushers

already complain about the potential domestic

deficit of seeds and the need to increase ex-

port duties. For Kernel, such risk is partially

mitigated by our own production of sunflower

seeds, but concerns about availability of

oilseeds still exist, especially for the second

half of the season. While under normal condi-

tions we were actively procuring oilseeds dur-

ing autumn to secure feedstock for the second

………………………………………………………………………………………………………………………………………………

Oilseed Processing segment performance

FY2021

FY2022

y-o-y

Oilseeds processed

thousand tons

3,183

2,187

(31%)

Sunflower oil sales

thousand tons

1,367

967

(29%)

Revenue

US$ million

1,747

1,681

(4%)

EBITDA

US$ million

(70)

n/a

EBITDA per ton of oil sold

US$ / ton

(73)

n/a

EBITDA margin

% of revenue

9.8%

(4.2%)

n/a

…………………………………………………………………………………………………………………………………………………

Types of investments required to facilitate inland export of sunflower oil

Due to the deficit of vegetable oil rail tanks, we started to invest in tank-containers. Such

solution simplifies the multimodal logistics and transshipment from one rail platform to another,

and allows to easily organize a temporary storage of sunflower oil if required.

The other solution is a primitive transshipment facility with crane equipment at Ukraine /

EU borders, granting access to both 1520 mm (Ukrainian) and 1435 mm (EU) railway gauge.

Such assets appeared to be in deficit when huge volumes of agri products were redirected for

export via EU.

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half of the season, this year we have a limited

capacity to conduct such procurements due to

no debt funding available.

Harvest

FY2023 will lay foundations for FY2024 har-

vest, as farmers will be deciding on the crop

mix. There are grounds to expect more farm-

ers switching to sunflower from corn, as the

former requires less fertilizers to be applied

and less natural gas to be consumed when

drying the crop at silos. Moreover, while ports

were unavailable for export operations,

oilseed processing value chain appeared to

be more profitable than grain export one,

providing additional economic arguments in

favor of sunflower.

Power outages

Recent Russian attacks on Ukrainian en-

ergy infrastructure have created another

risk for the business. Since October 10,

Russia has destroyed a substantial portion of

Ukraine's power generation and distribution

infrastructure (30-40% of energy infrastruc-

ture according to Ukrainian officials), trigger-

ing massive blackouts across the country. Our

Oilseed Processing segment is the most ex-

posed to such risk, standing for over 70% of

Group's total energy consumption. Abrupt

power outages may cause accidents, local

fires, damage of equipment and downtime of

plants, as minimum 10-12 hours are required

in the best case to eliminate the conse-

quences of such outages. The situation is bet-

ter in the case of planned power outages,

since we have time to prepare. We can miti-

gate such risk partially, as we constructed the

co-generation heat and power units at four our

crushing plants allowing the plants to be self-

sufficient in terms of electricity. But even in

such cases, abrupt power outages from the

outside may force the emergency shutdowns

of turbines, and consequently the full stop of

the plant and associated losses. For the other

plants, we procured diesel-generators, but we

have faced the delay with supply given the

huge local demand for such equipment.

Besides the direct power supply, massive

blackouts may also restrict the water supply to

plants and sewerage, and here we have much

less space to maneuver - if such critical infra-

structure is broken or de-electrified, it will be

extremely difficult for us to keep oilseed pro-

cessing operations.

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During the H1 of FY2022, Infrastructure and Trad-

ing segment was enjoying the favorable market en-

vironment, namely the mounting global soft com-

modity prices and rising export volumes of grains

supported by the all-time high harvest of 83 million

tons of grains collected in Ukraine. In the middle of

the year, with the Russian invasion of Ukraine and

consequential inability to export goods via Black

Sea, the segment experienced a substantial busi-

ness disruption which resulted in almost vanished

export volumes in March-June 2022. Despite the

enormous amount of efforts, the Group managed to

export only 123 thousand tons of grains during Q4

FY2022.

With the experience acquired, it became obvious

that any alternative export routes are not capa-

ble of fulfilling the Group’s needs in exports on

the usual levels. Moving large volumes of grain via

Ukraine-EU borders is impossible, and even tiny

volumes are associated with enormous costs, mak-

ing the whole export value chain (farming-logistics-

trading) loss making. The future segment perfor-

mance is totally contingent on the availability of ex-

port channels via the Black Sea, but having Russia

among the stakeholders of that process exposes

the stability of any future exports to huge risks. In

case of the inability to export grain via the Black

Sea ports, Ukraine may face changes in the crop

mix undermining the long-term farmland productiv-

ity and defaults of farmers in Ukraine entailing

heavy social consequences.

Update on strategy

Before the Russian invasion of Ukraine, we had a

mid-term target to reach the annual export of 15 mil-

lion tons of grain from Ukraine, up from 8 million

reached both in FY2020 and FY2021. Our strategy

assumed a business scale increase via M&A, con-

stant growth of the share of captive supplies and ef-

ficiencies enhancements which shall allow us to

move such huge volumes. But in current circum-

stances we put this Strategy 2026 on hold and fo-

cus more on the crisis management rather than

growth. Depending on the outcome of the war in

Ukraine, our growth plans may no longer be rele-

vant. If it becomes impossible to move large vol-

umes of grain from Ukraine, it may face a need to

look in more detail at various energy projects and

domestic processing instead.

Exported 8.0 million

tons of grains from

Ukraine in FY2022

EBITDA

(before unallocated head office expenses)

US$ 237 million

-34% y-o-y

Performing on the brink of the turmoil

Revenue

US$ 4,535 million

-7% y-o-y

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Market overview

The key market factors important to follow for

the Infrastructure and Trading segment per-

formance include the availability of the Ukrain-

ian Black Sea ports for export operations, the

harvest of grains in Ukraine, competition

among grain traders in Ukraine and competi-

tion among grain infrastructure assets, along

with other factors.

Grain harvest in Ukraine

In FY2022, Ukrainian farmers collected the

record grain harvest of 83 million tons

, in-

creased by 33% y-o-y. The acreage under

grains, namely: corn, wheat, and barley re-

mained relatively unchanged at 15 million

hectares.

Due to the all-time-high grain harvest, and de-

spite the war that has cut off Ukraine from the

substantial export volumes, in FY2022 the

grain exports from Ukraine amounted to 50

million tons, outperforming the previous year

by 12%. Ukraine ended up being the third-

largest exporter globally in 2021/22 season af-

ter the USA and Argentina, keeping 10.2%

market share in global grain trade

Looking forward to the 2022/23 season, it is

reasonable to expect a substantially lower

grain harvest driven by reduced acreage since

20% of Ukrainian land is temporarily occupied

by Russia, as well a substantial portion of land

remaining inaccessible due to active military

actions taking place.

Competition among grain traders

In Ukraine, we compete with established mul-

tinational trade houses (Cofco, Cargill, ADM,

Bunge, Louis Dreyfus, Glencore) as well as

with numerous local peers. While all the larg-

est exporters have their own grain export ter-

minals in ports, most of them lack a sufficient

silo network and grain railcars fleet, not to

mention the absence of their own farming

business.

Grain infrastructure trends

Silo business

With the obstacles to export agriculture prod-

ucts via the Ukrainian Black Sea ports, which

grain exports were contingent on by 97%, the

vast portion of the record grain harvest has

been stuck in Ukraine for an unpredictable pe-

riod of time. As of 30 June 2022, the amount

of grain stored in Ukraine has peaked to ~17

million tons, 5x times in comparison to the pre-

vious year’s stock. To prevent corn, wheat,

and barley from quality deterioration, these

commodities must be stored under proper

conditions, which, in turn, substantially

Three key grains: corn, wheat, and barley. Source: Company estimates as of October 2022.

Three key grains: corn, wheat, and barley. Source: USDA, as of October 2022.

increases the demand for the silo services in

Ukraine.

Nevertheless, such a trend is a rather detri-

mental factor for the agricultural industry. Fac-

ing the shortage of the storage capacities,

both farmers and traders either experience

contraction in margins due to the mounting

costs of storage, or just store the production

out of silos within improper conditions, which

leads to the write-offs of a substantial amounts

of grains due to their unsalable quality.

Grain railcars business

After the historic deficit of railcars in Ukraine

had been eliminated in FY2021, the FY2022

had begun with farmers and traders enjoying

the normalized lease costs. With the outbreak

of the war, the market was forced to seek al-

ternative export routes, railways being the

most in-demand solution. Such a pivot has ex-

posed the market to the substantial shortages

of railcars fleet, which has dramatically soared

the cost of the railway logistics.

Moreover, Ukrainian railways are constrained

with annual export capacity of ~7.8 million

tons, which forces agricultural traders to com-

pete not only with each other, but with other

industries as well. Before the ‘Grain Deal’ has

partially unlocked the seaports for the exports,

during April-June 2022, 2.1 million tons of

grains were exported from Ukraine by the rail-

ways, comprising 61% of grain exports from

Ukraine during the mentioned period.

Status quo and outlook

Considering the ’Grain deal’, in August-Octo-

ber 2022, the amount of grain exported from

Ukraine via ‘Green Corridor’ amounted to 5.8

million tons. Such a development is a positive

temporary relief for the industry. Nonetheless,

due to the lagging ship traffic and limited ca-

pacities, alongside with the presence of Rus-

sia among the stakeholders, it cannot be con-

sidered as a trustworthy solution for the ex-

ports.

In conjunction with restricted exports, Ukrain-

ian farmers are experiencing several other

business disruptions, such as mushrooming

costs of export logistics, shortages in grain

storage facilities, escalating prices on fertiliz-

ers, and other factors, which altogether

squeeze out the farmers’ margins. In the face

of their businesses converging to loss-mak-

ing, Ukrainian farmers are switching to cost-

cutting. Sparing costs on fertilizers, major pro-

duction inputs and technologies, as well as

freezing the CapEx plans, Ukrainian agricul-

ture is on the verge of the most challenging

cycle in its history. Such a vast number of is-

sues emerging during the wartime produces

harmful long-term implications for Ukrainian

farmers and, consequentially, for the traders.

………………………………………………………………………

Top-10 grain exporters from Ukraine

July - January FY2022

% of total grain export

Source: STARK, Kernel

18%

10%

Kernel

Nibulon

Louis Dreyfus

Cargill

Cofco

NCH

ADM

Glencore

Bunge

Sierentz

……………………………………………………………………

Top-10 grain exporters from Ukraine

April - June FY2022

% of total grain export

Source: Agrochart, Kernel

ULF

Kernel

UAH

Louis Dreyfus

Agroprosperis

АТК

Cofco

Nibulon

Glencore

LNZ

………………………………………………………………………

Grain exports from Ukraine by transport

April - June 2022

thousand tons

Source: Agrochart, Kernel

61%

35%

Railways River Auto

3.5

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Our business model

The Infrastructure and Trading segment com-

prises several interdependent business units

serving as a supply chain connecting Ukrain-

ian farmers with global markets: silo services,

grain railcars, export terminals in the ports,

grain origination and export business in

Ukraine, and Avere operations (offshore phys-

ical and proprietary trading).

Grain export business

Kernel is the leading grain exporter from the

Black Sea region and by far the largest from

Ukraine. The Group is involved in purchasing

grain from local grower partners (including

own Farming segment) and exporting it from

Ukraine, navigating in this low-margin busi-

ness by effectively combining the following

components:

• Experienced procurement team with

country-wide presence and deep under-

standing of local trends and regional pecu-

liarities;

• First-hand access to the unique in Ukraine

own infrastructure – the largest private

silo network, the largest private fleet of

grain railcars, as well as the largest deep-

water grain transshipment capacity in ports;

• Prudent risk management: locking up the

margins by selling grain through forward

contracts in a similar time frame as pur-

chasing it from farmers on the spot market

;

• Client-friendly approach allows Kernel to

positively differentiate relationships with

farmers managing it through the centralized

CRM system IBuyMore and supporting

them with numerous value-added initia-

tives.

In Ukraine, Kernel holds the title of one of the

largest providers of pre-crop financing to

farmers, investing over US$ 75 million in

farmer loans for the harvest 2022 both for

grain and sunflower seeds

. With the Open

Agribusiness initiative, the Group shares

know-how and provides various services to

third-party farmers. During the reported pe-

riod, the Group has substantially increased

the scope of our Open Agribusiness pro-

ject, which now includes partners with 168

thousand hectares of land, up from 90 thou-

sand hectares a year ago. Finally, Kernel pro-

vides advanced IT solutions to the suppliers,

including an electronic document flow system

(simplifies paperwork for farmers and acceler-

ates deals execution) and the Transithub vir-

tual truck navigation solution for providers of

grain and oilseeds logistics.

More than 75% of the grain exported from

Ukraine in FY2022 was sold on the FOB-basis

Deviations from such approach may appear during the business disruptions caused by the war in Ukraine.

The whole amount of such financing was provided before 24 February 2022, when Russia invaded Ukraine. The approach towards financing of third parties for next

season will be revised.

in the ports of Black Sea to big international

traders like OLAM, COFCO, Viterra, and oth-

ers. CFR/CIF sales achieved 23% of our grain

export volumes in FY2022 – in that case Ker-

nel also organized transportation of goods by

the sea to the port of destination.

In FY2022, Kernel exported 818 thousand

tons of ISCC-compliant corn, down 32% y-o-

y. Such corn is used for bioethanol production

and grants a price premium over conventional

corn, as ISCC certification confirms that corn

was produced in an environmentally and so-

cially sustainable way.

Silo services

We operate the largest private inland silo net-

work in Ukraine of 29 silos with combined

grain storage capacity of 2.3 million tons, and

of top of that we secured 0.3 million tons flexi

bags storage capacity for FY2023 season.

Additionally, one of our silos is located on the

territory temporarily occupied by Russia, and

we do not envisage this facility being opera-

tional in the nearest future. The assets net-

work includes highly productive storages ca-

pable of loading shuttle trains (54 railcars) in

one day, but also smaller and less efficient

floor-type silos.

The silos are located across the key grain pro-

ducing regions in Ukraine and provide grain

in-take, drying, cleaning, storage, and off-

loading services to our Farming segment and

to third-party farmers countrywide. The silos

start grain intake with wheat in July and end

with corn in December, thus being able to do

more than 1.0x storage capacity turnover over

the season.

In addition to the typical services provided,

Kernel’s silo network serves as an im-

portant origination tool, enabling the pro-

curement team to purchase grain and sun-

flower seeds from farmers within a 100-kilo-

meter range from the harvested land, thus be-

ing the first-choice buyer to consider. The

Group’s inland silo footprint facilitates the

maintenance of close contacts with farmers

and provides better visibility on the Ukrainian

grain supply.

Grain railcars

Kernel is the largest private operator of

grain railcars in Ukraine, with 11% market

share of total grain hoppers fleet in Ukraine.

The Group owns 3.4 thousand railcars used to

deliver grain from silos (owned by Kernel, as

well as by other players) to the grain trans-

shipment terminals in the ports. Ownership of

the railcars allows Kernel to save on lease

payments, though still paying for the usage of

railway traction and infrastructure. Since the

beginning of the war in Ukraine, 8% of the

Group’s wagons have remained stuck in the

territories temporarily occupied by Russia.

The remaining railcars serve as a huge sup-

port when pioneering the railway export

routes.

Export terminals

Kernel owns the largest grain transship-

ment port infrastructure in Ukraine and is

the No. 1 grain export terminal operator in

Ukraine by transshipment volume. Two grain

export terminals (TransBulkTerminal and

TransGrainTerminal) allow the Group to han-

dle 10 million tons of grain per annum. Both

facilities are in the deep-water Chornomorsk

port, Odesa region, and are capable of servic-

ing over-Panamax-sized vessels with

deadweight of up to 100,000 tons and maxi-

mum loading at berth of up to 80,000 tons.

Kernel’s terminals transship mainly grain

(98% of total throughput in FY2022), but also

sunflower meal, sunflower oil, and sunflower

husk.

The full control over the whole value chain

(silo – railcars – port terminal) allows us to

make an advanced long-term planning of

logistics, which significantly simplifies the co-

operation with state railway monopoly.

Avere operations

Avere is a research and knowledge platform

founded in FY2018 and headquartered in

Switzerland, with representative offices in

USA, Singapore, and China. Avere employs a

highly qualified research, trading, and execu-

tion team of 34 professionals. Avere sells sun-

flower oil produced by Kernel plants (79% of

total Kernel sunflower oil sales in bulk in

FY2022), purchasing sunflower oil from Ker-

nel at market prices (FOB Black Sea) and pay-

ing Kernel a fee for that. Additionally, Avere

originates sunflower oil from other counterpar-

ties in Ukraine. On top of that, Avere helps to

hedge Kernel’s growing grain export volumes

and farming produce. Finally, leveraging its

expertise, Avere is involved in the merchan-

dising and proprietary trading of grains,

oilseeds, and related products in the key world

markets.

Avere financial results are quite volatile be-

cause of its trading nature. Market risk taken

by Avere is managed by various tools, includ-

ing monitoring and restricting such metrics as:

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• Drawdown (difference in value from the

most recent peak to the most recent trough

in the market); and

• Value-at-Risk (a maximum potential loss

over one day with 95% confidence).

In FY2022, Kernel increased its stake in Avere

from 60% to 100%, as minority shareholders

of Avere exercised their put options to sell

Avere shares to Kernel. The total considera-

tion amounted to US$ 65 million, of which US$

32 million were paid during the reported pe-

riod.

Key developments

During the first half of the reported period, the

Group was enjoying favorable market environ-

ment with surging prices of soft commodities

and hiking export volumes driven by the all-

time high harvest of grains in Ukraine. We de-

livered record grain export volume from

Ukraine in H1 FY2022 (5.7 million tons) as

well as all-time high transshipment volume via

our terminals (5.2 million tons). In November

2021, the Group updated its monthly trans-

shipment record, handling 1.1 million tons of

agricultural products via its terminals in Chor-

nomorsk.

The situation drastically changed on 24 Feb-

ruary 2022 with the Russian invasion of

Ukraine, which disrupted the usual way of

doing business. Until the end of the reported

period, the Group’s port infrastructure was not

conducting vessel-loading operations at all,

forcing Kernel to switch to the alternative ex-

port routes.

Luckily, our grain export infrastructure has not

suffered any severe damage. Two Group’s

silos were damaged, reducing Kernel’s stor-

age capacity by 74 thousand tons, and 289

grain railcars remain inaccessible on the oc-

cupied territories.

Alternative export routes

Before the war, we exported the grain only via

the Ukrainian Black Sea ports. After the Feb-

ruary 2022, Kernel was forced to seek alter-

native logistics solutions with the railways,

auto transport and through the Danube River.

The Group faced the infrastructural bottle-

necks which could not be solved by Kernel on

its own in the short-term:

• Unmatched with the EU Ukrainian rail-

way system: Being connected with its Eu-

ropeans neighbors by 11 railway lines,

Ukraine operates the 1520 mm gauges,

while the European railways has different

1435mm-width tracks. The discrepancy in

the infrastructure does not allow trains com-

ing from Ukraine to directly transship the

product further to Europe. The trains must

stop at the special facilities, which are lo-

cated close to the border, to reload its pro-

duction in bulk or in containers to the EU-

standardized wagons and carts or by re-

placing bogies. Such a bottleneck produces

substantial delays in the delivery time and

results in the increasing costs. Agricultural

products compete not only among them-

selves, but also with other exports, includ-

ing metals and iron ore.

• Undeveloped river logistics: the main

route for the river exports from Ukraine lays

through the Danube River, but it suffers

from low productivity of the transshipment

facilities available there and the deficit of

river vessels. As a result, the export vol-

umes of grains through this route in April-

June 2022 amounted to just 1.2 million

tons.

In addition to problems with crossing the EU

border, we faced another one – ports in EU

Agribusiness at war: potential long-term implications for the industry

Difficulties with export of goods via the Ukrainian Black Sea ports may have

heavy consequences for Ukrainian agribusiness, including:

• Soared costs of logistics: switching from the Black Sea export routes

to the alternative channels is associated with skyrocketing logistics costs,

as such channels cannot absorb all the grain volume exported from

Ukraine. The situation is aggravated by worldwide energy inflation. Lo-

gistics problems affect not only the sale of the ready produce, but also

the supply of crop inputs and crop transportation from field to silo.

• Supply chain distortions also caused a local deficit and associated

price increase for the crop inputs, specifically fertilizers. Conse-

quently, farmers in Ukraine are forced to apply sub-optimal crop produc-

tion technology (resulting in subdued crop yields) and change crop struc-

ture, which in some cases undermine the mid-term productivity of farm-

land.

• Demographic crisis: as of November 2022, ~10 million Ukrainian citizens left the country as refugees. The drain is harmful in two main

aspects: contracted domestic consumption and shortages of available workforce.

• Reduced planting areas: as of November 2022, 20% of the Ukrainian territory is temporarily occupied by Russia. Cultivating such lands is

close to impossible. Moreover, some farmlands in the regions which are controlled by Ukraine but which have heavily suffered from military

actions were not cultivated this season as well. Besides that, 4.8 million ha of agricultural land in Ukraine where the military actions had

occurred, is full of explosives, which will result in additional time and cost required for proper de-mining process. As a result, we can observe

for crop 2022 one of the lowest in recent decade harvesting areas in Ukraine, and also huge uncertainty existing for the 2023 harvest.

Combined together, such consequences result in loss-making farming operations under closed-ports scenario and may result in defaults of

farmers in the nearest future.

…………………………………………………………………………………………………………………

Kernel grain export from Ukraine destinations

million tons

42%

25%

27%

Asia Europe Middle East Africa Other

8.0

…………………………………………………………………………

Kernel grain export from Ukraine

million tons

3.8

6.1

7.9

8.0

FY2018 FY2019 FY2020 FY2021 FY2022

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countries were not ready to absorb increased

flows from Ukraine. With great effort we man-

aged to sign several take-or-pay transship-

ment agreements with terminals in Roma-

nia, Germany, and Lithuania. Besides, sev-

eral take-or-pay arrangements were signed

with in-land railway transshipment facilities.

Such arrangements imply our obligation to

pay even if we decide not to conduct trans-

shipment operations, and the term of the con-

tracts in some cases reaches two years. We

perceive such take-or-pay arrangements as

an insurance for us: if the Black Sea remains

open, it will make little sense to use inland ex-

port channels, and thus we will be obliged to

pay fines. But if Black Sea closes again, such

arrangements will allow us to keep the mini-

mum required level of export volumes. In such

case, we doubt the export will be profitable,

but at least it may help to convert our invento-

ries to cash and support the liquidity position

for the Group.

The headcount of the segment increased

3% y-o-y, to 2,679 employees as of 30 June

2022. The new hires are mostly associated

with the additional employees required for the

Group’s pioneering of the alternative export

routes.

Performance overview

In FY2022, the Group exported 8.0 million

tons of grain from Ukraine. Corn comprised

61% of exported volumes, wheat – 21%, and

the remaining percentage standing for barley

and other miscellaneous crops. The Group’s

own Farming segment produced 12% of grain

Kernel exported in FY2022. While full-year

grain export volume remained virtually un-

changed y-o-y, Kernel’s market share in

grain export has contracted, reaching 16%

for FY2022, as compared to 18% in the previ-

ous season

. In FY2022, the Group kept 20%

of all corn exported from Ukraine, 13% of

wheat, and 12% of barley

. For the reported

period, Kernel retained its leading positions,

but has lost the title of the largest grain ex-

porter from the Black Sea region.

During the reported period, Kernel trans-

shipped 7.3 million tons of goods (grain,

sunflower meal, oil, and husk) through its port

facilities, down by 11% y-o-y. The decline is

mainly attributed to the disruptions of exports,

which occurred with the war, and have re-

sulted in no volumes transshipped through

the Group's terminal facilities in the fourth

quarter.

Source: Kernel analysis

FY2021 EBITDA was corrected, as explained in detail in the notes to the consolidated financial statements.

While the total Avere contribution for the Group was US$ 133 million EBITDA in FY2022, it is the result of US$ 190 million Avere trading EBITDA less US$ 57 million

payroll related expenses associated with Group’s liability to acquire the minority stake in Avere from subsidiary’s minority shareholders and mirroring the net profit

attributable to Avere minority shareholders during the reporting period.

At the same time, the volume of grain received

in inland silos has amounted to 4.2 million

tons, 10% up y-o-y, driven by the record 2021

crop size delivered by Ukraine.

Segment EBITDA in FY2022 amounted to

US$ 237 million, down 34% y-o-y

. As in the

previous year, the major portion of that

(namely, US$ 134 million

, or 57% of segment

total) was contributed by Avere trading oper-

ations, which capitalized on high volatility of

global soft commodity prices and advanced

capabilities of fundamental S&D analysis of

key agricultural markets. While Avere contri-

bution reduced 46% y-o-y, it still remained well

above our normalized long-term expectations

for Avere performance.

Grain export value chain in Ukraine generated

US$ 103 million EBITDA in FY2022, reflect-

ing:

• Strong pre-war performance driven by

record grain harvest in Ukraine and up-

scaled Kernel grain export asset base. Dur-

ing H1 FY2022 we reached all-time-high

semi-annual export volumes from Ukraine.

Practically all FY2022 segment volumes

and earnings were delivered before 24 Feb-

ruary 2022; and

• Loss-making operations after the war

broke out, negatively impacted also by

US$ 82 million losses stemming from the

reduction of inventory net realizable value

below the cost, reserve for inventories lo-

cated on the territories occupied by Russia,

and provisions created for accounts receiv-

able. While adjusting for such losses, grain

export business in Ukraine was still unprof-

itable after the 24 February 2022 due to low

sales volumes and mounting logistics costs.

FY2023 outlook

Avere outlook

While in the last two years Avere trading

business was the major contributor to seg-

ment EBITDA, we do not expect a sizable

contribution from Avere in FY2023. Markets in

the new season are primarily dominated by

the political agenda, and to a smaller extent

by the fundamental factors. Trading in such

environment is extremely risky, so our ap-

proach is to stick to mild earnings but to mini-

mize potential losses. As a result, Avere’s

trading team reduced their positions and is

acting very cautiously in the current year. As

of the day of this report, the business remains

profitable, but we do not retain much optimism

over the full year performance.

Outlook for grain export value chain

in Ukraine

The availability of the grain corridor for the

seaborn export from Ukraine remains the

most important factor for our grain export busi-

ness in Ukraine for FY2023.

If the grain deal is extended beyond Novem-

ber 2022, our business is likely to remain prof-

itable. For sure, there will be numerous defi-

ciencies related to the low speed of passing

the grain corridor (including sabotage from

Russian representatives), extra freight costs

accounting for geopolitical risks, inability of

long-term planning of the trade program and

so on, but such drawbacks are nothing com-

pared to the outcomes of the “closed ports”

scenario.

If the grain deal is not extended, our opera-

tions are likely to be lossmaking, as it was in

Q4 FY2022, or balancing close to break-even.

While we have an action plan to minimize

such negative consequences, including US$

170 million CapEx plan to expand our export

capacities via the alternative export routes

and to reduce costs, it may take time for the

…………………………………………………………………………

Infrastructure and Trading segment EBITDA

US$ million

101

106

216

373

237

FY2018 FY2019 FY2020 FY2021 FY2022

…………………………………………………………………………………………………………………………………………………………

Infrastructure and Trading segment performance

FY2021

FY2022

y-o-y

Grain export volumes

thousand tons

8,013

7,969

(1%)

Export terminal's throughput (Ukraine)

thousand tons

8,159

7,269

(11%)

Grain received in inland silos

thousand tons

3,801

4,185

10%

Revenue

US$ million

4,857

4,535

(7%)

EBITDA

US$ million

359

237

(34%)

EBITDA margin per ton of grain exported

US$

(34%)

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Financial

Statements

impact to materialize.

Another problem for FY2023 will be the roll-

ing blackouts and power outages in

Ukraine given the recent Russian attacks on

the Ukrainian energy infrastructure. The most

severe impact for the segment might be the

grain railway transportation disruptions, as

majority of railways in Ukraine are running on

electricity. Additionally, we may face power

outages for our silos and export terminals. In

case of silos, power deficit will not allow to

make in-take/offloading operations and grain

cleaning and drying as well. When the port ter-

minal is unexpectedly de-energized, we face

commercial losses related to demurrages and

the downtime of trucks and railcars. To miti-

gate such risks for our key silos, we are work-

ing on securing emergency power supply via

diesel-generators, which we have already pur-

chased and expect to be delivered in Decem-

ber 2022. For our export terminals in Chorno-

morsk we are working now on establishing the

direct power bridge between the port facilities

and our co-generation heat and power plant

located at our Black Sea Industries oilseed

processing facility in Chornomorsk.

Volume-wise, we have some visibility only for

our grain silo business, where we aim to

reach 2.5 million tons of grain in-take vol-

ume, implying a 40% decline y-o-y. The pri-

mary reason will be a lack of free storage ca-

pacity considering the high carry-over stocks.

Therefore, we will be obliged to minimize the

grain intake from third parties and focus pri-

marily on securing the storage for the crop

harvested by Group’s own farming operations.

Unlike in all the previous years, the grain har-

vest in Ukraine will not be of big im-

portance this season, as supply will be sup-

ported by almost 17 million tons of carry-over

grain stocks from the previous season. Any-

way, the grain harvest is expected to shrink by

30-40% y-o-y due to both:

• the reduction in planting area as a result

of the temporary occupation of some

Ukrainian territories and active military ac-

tions on other territories; and

• decline in crop yields, stemming from

suboptimal crop production technology ap-

plied due to deficit / high cost of crop inputs,

problems with logistics and delays with the

harvesting caused by the deficit of storage

capacities.

Besides, the market will encounter problems

with grain quality, as large portion of corn is

likely to be harvested during winter.

Notwithstanding, export capacity is likely to re-

main a key constraint for the market in

FY2023.

The ‘Grain Deal’

On July 22

, 2022, the so-called ‘Grain deal’ was signed among Ukraine, UN,

Turkey, and Russia. The main purpose of the agreement was to unlock the ex-

ports of agricultural products from Ukraine through the Black Sea ports: Odesa,

Chornomorsk and Pivdenny. The parties agreed that the special ‘Green corridor’

must be created, the corridor is expected not to suffer from any military actions

or Russian missile strikes, and each vessel entering the corridor must be regis-

tered and inspected near the Bosporus by the special supervisory group consti-

tuted by the representatives of each stakeholder, including Russia. As of October

, 5.8

million tons of soft commodities were exported through that corri-

dor, providing a huge relief for Ukrainian agricultural sector.

In August 2022, with the first ship leaving the port, the main risk-factor associated

with the deal was that Russia can potentially break the contract by launching

a massive rocket shelling on the ports’ infrastructure and vessels. The Group’s

experience demonstrated that apart from the real security threat, Russia can

harmfully impact the deal in a different way:

• Since the mid of September 2022, Russian inspectors made a lot of effort

to create the delays in the inspection process through the bureaucratic

procedures. Due to the artificially created delays, the queues of vessels have

been growing. At the end of October, the size of the queue exceeded to 100

vessels waiting for the inspections.

• In October, the average waiting time in the corridor had approached 15-16

days, continuing to grow further. Despite a substantial penalties charterers

need to pay owing to the delays, such a significant postponement in further

logistics can potentially result in the termination of export contracts, reduc-

ing the further incentive of the contractors to deal with the Ukrainian traders

through this corridor.

• In conjunction with the delayed inspections, a planning problem exists,

namely: the list of vessels allowed for the next day’s inspections becomes available at prior evening. With the one-day planning window, for

a trader, it is impossible to operate with any certainty even in the very short-term prospective.

Besides, risks associated with the grain corridor negatively affected its functioning: the pace of export was quite slow at the beginning (when

market players where cautious about the viability of the solution) and at the end (when grain exporters lacked the confidence in its prolongation).

Russian statements at the end of October regarding their exit from the Grain Deal created additional uncertainties of the availability of the Black

Sea for the export of Ukrainian agriproducts. The deal itself terminates on November 19

, and there is no certainty in its prolongation as well.

– Volume of goods, which have successfully left Bosporus

100

120

1-Aug 16-Aug 31-Aug 15-Sep 30-Sep 15-Oct 30-Oct

Number of vessels waiting to leave

Bosporus

0.0

0.5

1.0

1.5

2.0

2.5

1-Aug 16-Aug 31-Aug 15-Sep 30-Sep 15-Oct 30-Oct

Volume of goods waiting to leave

Bosporus, million tons

Source: Joint Coordination Centre of the Black Sea Grain

Initiative Vessel Movements, Kernel analysis

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Farming

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

After enjoying two seasons of strong performance

and supportive pricing environment, the Russian in-

vasion of Ukraine acting as a black swan com-

pletely turned around the outlook for the business.

The farming business – a cash cow, which gener-

ated US$ 820 million EBITDA in FY2021 and H1

FY2022 – faced unprecedented challenges related

to the ability to secure crop inputs, cultivate the land

in temporarily occupied regions and sell agripro-

duce, which resulted in negative EBITDA for H2

FY2022, and a total US$ 219 million result for the

reporting period, down 52% y-o-y.

Update on strategy

The war in Ukraine forced us to put on hold the

execution of our mid-term growth Strategy 2026,

assuming the increase of the landbank under oper-

ations to 0.7 million hectares and reaching 4 million

tons of in-house crop production. In the future, we

might be forced to re-think our strategy related to

the Farming segment, depending on the progress

of the war in Ukraine.

There are uncertainties about the profitability of

the Farming segment for the future related to the

outcome of the war in Ukraine. In the worst-case

scenario, when Ukraine loses access to the Black

Sea ports or such ports are unavailable for export

operations for a long time, there will be an oversup-

ply of grain and oilseeds on the local market. And

given that 1) alternative export routes have con-

strained capacity with quite limited possibility to ex-

pand; 2) domestic demand is declining due to emi-

gration and falling households’ income; and 3) do-

mestic processing capacity is low compared to the

harvest size, the oversupply of grain and oilseeds

on the local market may keep farming margins de-

pressed. A part of the farmland in Ukraine may con-

sequently turn into fallow land.

Additionally, the business is subject to a vulnera-

ble social component, including lease payments

to landowners, salaries to employees mostly from

rural areas, charity and social expenses to local

communities. With undermined profitability, such

social commitments significantly increase the fragil-

ity of the business.

Divestment of farming entities

Keeping in mind the potential outcomes of the war

between Ukraine and Russia and implications on

the Group’s operations going forward, we decided

to divest a part of the farming business consist-

ing of leasehold rights for 134 thousand hectares of

farmland, grain storage silo, farming machinery and

working capital, with a consolidated net asset value

of US$ 230 million as of 30 June 2022, for a consid-

eration of US$ 210 million, to de-risk our business

model and secure incremental liquidity. The trans-

action will be completed after releasing the enti-

ties from obligors’ group in some of the banking

lines.

Should the situation with seaborn exports from

Ukraine stabilize, divestment will have muted im-

pact on future Group’s operations as it represents a

small share of net assets of Kernel as of 30 June

2022 and would not have material impact on

Group’s cash generation capabilities. But under

some worst-case scenarios, such a deal might be

strongly beneficial for the Group.

Revenue

US$ 635 million

-3% y-o-y

EBITDA

(before unallocated head office expenses)

US$ 219 million

-52% y-o-y

y-o-y

Produced 3.2 million

tons of corn, wheat

and sunflower in

FY2022

Blurred perspectives on the horizon

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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nel.ua

Farming continued

Strategic

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Sustainability

Corporate

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Our business model

Large-scale farming

Kernel is one of the largest crop producers in

Ukraine. As of 30 June 2022, the total area of

leasehold farmlands under Kernel’s opera-

tions amounted to 363 thousand hectares

including 327 thousand hectares under 2022

crop to be sold, 7 thousand hectares of land

under seeds and crops grown for in-house use

(cattle business), and 29 thousand hectares of

fallow land (unsown this season due to active

military actions in Northern Ukraine, inability

to ensure safety of employees and difficulties

with supply of crop inputs). In FY2022, we har-

vested 3.2 million tons of corn, wheat, and

sunflower

. We operate in the central and

northern regions of Ukraine with highly fertile

chornozem black soils and sufficient precipita-

tion. The land bank is organized into five pro-

duction clusters, with operational decision-

making sufficiently decentralized to allow pro-

duction teams to react quickly to any form of

externalities. The central office is responsible

for the overall business strategy, key inputs

procurement, and operations oversight.

Healthy competition among clusters encour-

ages continuous efficiency improvements.

Kernel cultivates non-GMO crops, which is

the only legally allowed option in Ukraine.

We adhere to a simple crop mix dominated

by corn and sunflower, covering in total 80-

85% of our farmland bank, and the remaining

percentage standing for wheat, rapeseed,

Excluding assets held for sale

The FY2022 crop was harvest on the area of 499 thousand hectares, which Group operated before the divestment of some farming entities in April 2022.

soybean, and other minor crops.

The Farming business is characterized by a

long working capital cycle (~18 months), as

seen in the “FY2022 crop production cycle”

graph below.

Leasehold land operations

The state, municipalities, and state-owned

companies hold about a quarter of Ukraine’s

agricultural land. Another 75% are tiny land

parcels (4-10 ha depending on the region)

held by private individuals, who gained the

ownership rights during the land distribution

process in 1990s when the Soviet Union col-

lapsed.

For the last two decades, all farmland in

Ukraine has been under moratorium and was

prohibited from being sold. It was first enacted

in 2011 and extended by the parliament nu-

merous times, stifling the development of

farming business in Ukraine. Therefore, agri-

cultural producers lease lands from current

owners, and since 2015, the minimum land

lease term for new agreements is seven

years, ensuring farmers’ business operations.

Farmland market opened on 1 July 2021, alt-

hough with numerous restrictions, the most

important of which are as follows:

• The citizens of Ukraine were allowed to ac-

quire agricultural land, but not more than

100 hectares per one individual;

• Beginning 1 January 2024, legal entities in-

corporated in Ukraine are permitted to buy

agricultural land, and the concentration limit

increases from 100 hectares to 10,000 hec-

tares both for private individuals and legal

entities.

• Foreign individuals and corporations, and

legal entities set up under the Law of

Ukraine, but with foreigners among the

shareholders, are prohibited from buying

the land unless the nation-wide referendum

decides otherwise.

Kernel leases all the land under operation,

with lease contracts having average maturity

of 13.4 years. All lease contracts include the

right of first refusal to prolong leases or to buy

the land in case of being allowed to do so. For

15 thousand hectares of land we operate, we

…………………………………………………………………..

Kernel’s farmland lease rights maturity

as % of total landbank

13%

37%

36%

< 5 years 5-10 10-15 15-20 > 20

years

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………

FY2022 crop production cycle

FY2021

FY2022

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

July

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar-Jun

Corn

Land preparation

Fertilization

Planting

Plant protection

Harvesting

Selling

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

July

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar-Jun

Sunflower

Land preparation

Fertilization

Planting

Plant protection

Harvesting

Selling

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

July

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar-Jun

Winter wheat

Land preparation

Fertilization

Planting

Plant protection

Harvesting

Selling

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Farming continued

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Corporate

Governance

Financial

Statements

signed long-term (up till 2118 year) land lease

(‘emphyteusis’) agreements, whereby we paid

all rent payments to the lessor in one install-

ment at the signing of the agreement. It allows

us to secure our operations for a much longer

period compared to typical farmland lease

contracts.

Private individuals own 88% of the landbank

that we lease, and 12% is owned by state.

Efficient and sustainable production

technology

We take great care to ensure our operations

maintain long-term productivity of the soil by

applying sustainable agronomy practices.

We do the significant portion of tillage and soil

leveling in autumn, thus completing our spring

planting campaign within a shorter time frame.

We apply mostly differentiated tillage, rotating

mini-till and deep-till technologies. We con-

stantly upgrade our fleet with modern highly-

productive machinery and equipment with rel-

atively low consumption of fuel and low level

of emissions, driving energy efficiency.

Except for 2,800 hectares of irrigated land

used for in-house seed production, all our

farmland is rain-fed, with all the associated

weather risks.

We apply balanced fertilization to enrich our

soils, utilizing both organic and mineral fertiliz-

ers. Unlike the majority of farmers in Ukraine,

we apply most of our fertilizers in autumn,

ahead of the spring planting campaign. Au-

tumn application provides a longer time for fer-

tilizers to be absorbed by the ground, allowing

us to use liquid fertilizers that are more digest-

ible compared to dry fertilizer, and resulting in

faster completion of the spring planting cam-

paign. For several years, we have applied

deep fertilizer placement (ca. 15-20 cm under

the ground), thus concentrating around the

plants’ root system ensuring faster absorption

and improving nutrient use efficiency.

We use only the highest-quality non-GMO

seeds. Most of them are grown in-house from

premium parent seeds, sometimes jointly with

established global seed producers, and the

rest is supplied by recognized global players.

Our crop rotation cycle is designed to prevent

the expansion of pathogens and pests and im-

prove the soil structure.

We use only crop protection agents produced

by established international companies and

registered by the Ministry of Ecology and Nat-

ural Resources of Ukraine. Before wide appli-

cation, we observe the pesticides in action on

our test fields for at least three years. We

widely use drones for crop monitoring to im-

prove the quality of decisions about fertilizing

and crop protection.

Nearly entire our landbank is ISCC-

certified, which proves that crops are pro-

duced in an environmentally and socially sus-

tainable way and in compliance with laws and

good management practices.

Key developments

In FY2022, we managed to achieve a record

crop size in our history of 3.2 million tons for

three key crops: corn, sunflower, and wheat.

We achieved a largest in our history crop net

yield for wheat (6.1 tons per hectare) and a

second largest for corn (9.3 tons per hectare),

representing 26% and 17% y-o-y increase, re-

spectively, driven by overall supportive

weather conditions and applying our best-in-

class crop production technology.

Despite the strong in-house supply, the Rus-

sia’s invasion of Ukraine created substantial

problems with selling the crop. As of 30 June

2022, we had almost 800 thousand tons of un-

sold corn and sunflower seeds – the highest

carry-over stock in our history.

Besides, the war in Ukraine had several other

consequences for our farming business:

• Firstly, we reduced the sown acreage in

our northern cluster by 28 thousand hec-

tares, being unable to properly complete

the spring sowing campaign there due to

the lack of crop inputs and given that re-

gions were either temporarily occupied or

not properly de-mined after de-occupation.

• Secondly, we revised our crop acreage

structure for the current season. We signif-

icantly reduced the share of corn (from 51%

to 41%), partially in favor of sunflower (an

increase from 31% to 36%) presuming

more attractive economics of oilseed pro-

cessing in Ukraine as compared to grain ex-

port for the period of war in Ukraine, and in-

creased the percentage of land kept as fal-

low to 8% of landbank in operations.

• Thirdly, we have not managed to apply

our typical crop production technology

……………………………………………………………………

Kernel’s acreage harvested by crops

thousand ha

34%

42%

45%

51%

22%

25%

27%

30%

31%

24%

19%

15%

13%

596

529

513

501

499

FY2018 FY2019 FY2020 FY2021 FY2022

Corn Sunflower Wheat Other

………………………………………………………………………..

Kernel’s production of key crops

thousand tons

1,357

2,208

1,975

2,032

2,360

311

426

473

449

469

709

508

569

357

395

2,378

3,142

3,017

2,837

3,225

FY2018 FY2019 FY2020 FY2021 FY2022

Corn Sunflower Wheat

…………………………………………………………………………………………

Kernel’s crop yields

tons per ha

Note 1: For comparison purposes, yields for FY2018 are provided for Ker-

nel’s initial lands (prior to land bank expansion in summer 2017) to avoid

dilution effect.

8.9

7.3

9.8

8.5

8.0

9.3

5.1

5.8

5.4

5.1

5.9

4.9

6.1

2.8

3.0

2.7

3.2

3.5

3.0

FY2017

FY2018

FY2019

FY2020

FY2021

FY2022

Ukraine

Corn

Wheat

Sunflower

………………………………………………………………………...........................................................................................................................

FY2022 harvest results

Acreage

thousand hectares

Net yield

tons / ha

Harvest size

thousand tons

FY2021

FY2022

y-o-y

FY2021

FY2022

y-o-y

FY2021

FY2022

y-o-y

Corn

255

(0.3%)

8.0

9.3

17%

2,031

2,360

16%

Sunflower

149

154

3.7%

3.0

449

469

Wheat

(12%)

4.9

6.1

26%

358

395

10%

Other

(9.5%)

Total

501

499

(0.4%)

2,838

3,225

14%

Note 1. 1 ton per hectare equals 15.9 bushels per acre for corn and 14.9 bushels per acre for wheat and soybean.

Note 2 Includes soybean, pea, rapeseed, barley, forage crops and other minor crops, as well as land left fallow for crop rotation purposes.

Note 3 For the three main crops: corn, sunflower and wheat.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Farming continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

facing the local deficit of some crop inputs

and business disruptions caused by difficul-

ties with logistics and mobilization of some

of our employees to the Armed Forces of

Ukraine. Despite all our efforts to mitigate

such factors, the suboptimal farming tech-

nology will have a negative impact on our

crop yields.

• Finally, based on huge risks around the

profitability of farming business in case

Ukraine loses access to Black Sea, we de-

cided to divest a part of our landbank to

de-risk the business and get extra liquidity.

The deal was signed in April 2022, and the

completion will happen upon releasing the

entities divested from obligors’ group in

some of the banking lines. Following the di-

vestment, our landbank reduced by 134

thousand hectares to 363 thousand hec-

tares

Performance overview

The Farming segment reported US$ 219 mil-

lion EBITDA in FY2022, a 52% decline y-o-y,

with the key performance factors described

below.

Despite weather-related concerns and delays

with sowing and harvesting, the crop size

achieved was the highest in our history. Our

advanced farming expertise allowed us to mit-

igate numerous risks over the season and se-

cure a strong stock of in-house produced

goods for sale.

Grain and oilseed prices continued to rally in

FY2022, further boosting the performance.

We have successfully captured part of that

growth, actively selling our own crops in the

first half of the season. Part of the price-driven

gain was neutralized by the cost inflation, pri-

marily due to the energy (transportation ex-

penses and silo services) and land lease costs

increase. Nevertheless, we generated record

semi-annual segment EBITDA of US$ 359

million in H1 FY2022. But after Russia’s inva-

sion of Ukraine started on 24 February 2022,

our sales practically stopped, and export con-

tracts were terminated invoking the force-

majeure clauses due to our inability to ship

goods. Moreover, we recognized US$ 145

million losses stemming from the impairment

of assets and reduction of net realizable value

of inventories below costs. As a result, we

booked a loss of US$ 140 million at EBITDA

level in H2 FY2022.

The generated earnings implied US$ 440

EBITDA per hectare in FY2022 with 499

thousand hectares harvested in FY2022, but

keeping in mind almost 800 thousand tons of

corn and sunflower which remained unsold as

The entities divested were accounted as assets held for sale and as liabilities associated with assets held for sale in Group’s consolidated statement of the financial

position as of 30 June 2022.

of 30 June 2022.

FY2023 outlook

A new season brings about unprecedented

challenges for our Farming business.

The key risk is the functioning of the grain

corridor. If the grain deal is not extended, we

may face the export bottlenecks again, and

the domestic prices may decline.

But even the functioning corridor brings a few

challenges, namely

• the inability to sell crop via forward con-

tracts. Unusually for this part of the season,

we struggle with hedging and remain long

for most of the new season crop and the re-

maining carry-over stocks from the previous

season. It substantially increases our ex-

posure to the volatility of global soft

commodity prices.

• Secondly, the crop size this year is ex-

pected to be lower y-o-y. The primary rea-

son is the divestment of part of the landbank

which we carried out to de-risk our opera-

tions. But on top of that, we will face lower

yields y-o-y. While there were no major

weather shocks, suboptimal crop produc-

tion technology applied negatively im-

pacted crop yields. We have already com-

pleted the harvesting of winter crops,

achieving a 4.7 tons/hectare net yield,

which is 24% decline y-o-y. Sunflower har-

vesting is almost completed, and prelimi-

nary data indicated 2.5 tons/hectare net

yield (down 17% y-o-y).Corn harvesting is

substantially delayed due to rainy weather

in September, inability to harvest at nights

due to the curfew in Ukraine, deficit of

trucks for transportation of corn from field to

silo, and problems with silos’ intake caused

by electricity shortages and deficit of natural

gas to dry corn. Our preliminary estimate for

corn yield is 8.7 tons/hectare (down 6% y-

o-y), but it has the potential to reduce. What

is more, if the harvesting is postponed to

winter, we may face problems with corn

quality, which will be reflected in price dis-

counts applied.

While global prices for grain and oilseeds re-

main high, there exists a large spread be-

tween the local prices in Ukraine and inter-

national benchmarks. Such spreads are at-

tributable to expensive logistics and rewards

for risks of export from Ukraine, encapsuled in

the margin of traders.

The production costs are expected to keep

growing. Corn production costs increased by

over 30% y-o-y in FY2022, and are likely to

grow further in FY2023, driven mostly by

energy, fertilizers and materials inflation, and

increased social burden. At the same time,

some relief may come from the reduced land

lease costs, paid in local currency, consider-

ing the depreciation of UAH against US$.

An important decision to be made in FY2023

will be the crop structure for 2023 harvest.

A difficult mission to accomplish will be to se-

cure all crop inputs for the new sowing cam-

paign, primarily nitrogen-based fertilizers.

………………………………………………………………………………………

Profitability dynamics

US$ million

470

602

604

657

635

182

134

461

219

19%

30%

22%

70%

35%

FY2018 FY2019 FY2020 FY2021 FY2022

Revenue EBITDA

EBITDA margin, %

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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nel.ua

Risk management

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Risk management system

At Kernel Holding S.A., management defines

risk as an event, action or lack of action, which

can lead to failure to achieve the Company’s

objectives.

Kernel has an evolving system of risk man-

agement aimed at preserving the stability

and solvency of the Company under ex-

treme conditions to secure long-term sus-

tainable value for shareholders.

Based on the Risk Management Policy

(adopted by the Board of Directors in Novem-

ber 2018) and underlying policies and proce-

dures, Kernel monitors and assesses its risk

exposures on a regular basis and takes steps

to minimize their impact.

Key roles

The Company’s risk management is realized

by the Board of Directors, executive manage-

ment team and other management and staff,

starting from the strategy development and

impacting all activities and processes of the

Company. These activities set out to identify

and manage risks, in order to provide reason-

able assurance of the Companies’ goals ac-

complishment. Please see details at Key roles

and duties in the risk management process

chart.

Risk management cycle

The risk management cycle includes five

stages: risk identification; risk assessment

and prioritization; planning risk management

actions; actions implementation; measure-

ment, control and monitoring.

Risk categories

The management classifies all risks into five

categories:

1. Strategic (Business)

2. Operational

3. Financial

4. Regulatory

5. Sustainability

Top-10 risks identified for FY2023 includes

risks from Strategic (Business), Financial, and

Operational categories.

………………………………………………………………………………………………………………………………………................

Kernel’s risk identification and mitigation system

………………………………………………………………………………………………………………………………………............

Key roles and duties in the risk management process

CEO

→ owner of the risk management

process for the Company as a

whole;

→ responsible for implementing

the risk management strategy

and functioning of the effective

risk management system.

Board of Directors

Risk Committee of the Executive Management Team

Audit Committee

Assists the Board of Directors in the discharge of its risk man-

agement responsibilities

→ formulating the description of the risks specific to the Com-

pany;

→ overseeing adequacy and effectiveness of Kernel’s risk man-

agement system;

→ reviewing the Company’s policies on risk assessment and

risk management.

→ supervise the risk manage-

ment process

→ determine and approve the

level of risk acceptability and

Company’s risk appetite

→

decide on critical and signif-

icant risks

→

review the risk related re-

ports

→ ensure the introduction and implementation of the risk

management policy and procedures;

→

develop and continuously improve an effective risk

management and monitoring system, spreading the

culture of decision-making in terms of risks, their valu-

ation and likelihood of occurrence;

→

coordinate roles and participants;

→

identify, assess, manage and control key risks;

→

coordinate updating and improvement of the internal

control system.

Internal Audit

→

assess the adequacy and effectiveness of risk

management processes and internal controls in

operations;

→

assist Directors on operational risk identification,

assessment and prioritization in operations;

→

implementation, status monitoring, internal con-

trols and mitigation activities of action plan of op-

erational risks;

→

assist, advise and consult management in im-

proving the effectiveness of risk management

and internal control systems in operations.

Directors and executives

risk owners within their functional duties

→

Identification of risks;

→

Assessment of risks;

→

Making and implementing deci-

sions on risks mitigating actions.

Risk identification

Risk assessment

and prioritization

Risk

mitigation plan

development

and execution

Monitoring of

plan execution

Risk manage-

ment process

enhancement

Risk management

cycle

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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nel.ua

Risk management continued

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Top-10 risks

This section includes a summary of the main

risks that Kernel may face during the normal

course of its business. However:

• this section does not purport to contain an

exhaustive list of the risks faced by Kernel

and Kernel may be significantly affected by

risks that it has not identified or considered

not to be material;

• some risks faced by Kernel, whether they

are mentioned in this section or not, may

arise from external factors beyond Kernel’s

control;

• whereas mitigations are mentioned in this

section, there is no guarantee that such

measures will be effective (in whole or in

part) to remove or reduce the effect of the

risk;

• investors may face other risks when dealing

with Kernel securities (shares and bonds).

As a result of the latest review cycle, the

Board approved Top-10 risks faced by the

Group for FY2023 as depicted on the chart be-

low.

The unexpected challenges which came

alongside with the war have absolutely re-

shaped and disrupted the business environ-

ment the Group operates in, resulting in the

following key changes for FY2023 Top-10

risks against FY2022 Top-10 risks:

• 5 new risks were recognized among top-10

risks, including Logistics disruption as a #1

challenge for the entire Ukrainian agricul-

ture sector because of the difficulties with

export via the Ukrainian Black Sea ports;

Loss of critical infrastructure (either occu-

pied by Russia or physically destroyed by

missile attacks) and Loss of inventories due

to quality deterioration, physical loss due to

military actions and loss of crops in the

fields; Liquidity associated risks and Credit

and counterparty risks.

• The probabilities and possible impact val-

ues of five other risks have changed:

− Risk probability of Investments project

management risks and Information se-

curity and IT risks increased reflecting

recent developments;

− Risk impact and probability of Trade po-

sition management risks increased

given the increased volatility of global

markets;

− Low prices risk impact elevated (given

the increased share of own produce in

Group’s export and problems with

hedging), but the probability is reduced,

taking into account the outlook for

global commodity markets for FY2023.

………………………………………………………………………………………………………………………………………..........................................................................................................................

Kernel FY2023 Top-10 risks

Top-10 risks matrix

Risk impact

Risk Probability

Very low Low High Very high

Severe

Major

Moderate

Minor

Medium

Strategic (Business)

risks

Operational

risks

Change

y-o-y

New

risks

Other risks identified by the Company’s management include (but are not limited to):

→ Weak harvest in Ukraine;

→ Failure to maintain the integrity of the leasehold farmland bank;

→ Fraudulent activities;

→ COVID-19 related risks;

→ Human capital risks;

→ Increase in competition;

→ Sustainability-related risks: non-compliance with environmental standards; undermined profitability due to more severe environmental require-

ments applicable to farming and oilseed processing related with implementation of the European Green Deal; low sustainability rating of Kernel

may increase cost of capital;

→ Weak economic growth, either globally or in the Group’s key markets;

→ Economic policy, political, social, and legal risks and uncertainties in countries other than Ukraine in which Kernel Holding S.A. operates;

→ Any loss or diminution in the services of Mr. Andrii Verevskyi, Kernel Holding S.A.’s chairman of the Board of Directors;

→ The risk that changes in the assumptions underlying the carrying value of certain assets, including those occurring as a result of adverse

market conditions, could result in the impairment of tangible and intangible assets, including goodwill;

→ The risk of fluctuations in the exchange rate of the Ukrainian hryvnia to the US dollar;

→ The risk of disruption or limitation of natural gas or electricity supply;

→ The risk of disruptions in Kernel Holding S.A.’s manufacturing operations;

→ The risk of product liability claims;

→ The risk of potential liabilities from investigations, litigation, and fines regarding antitrust matters;

→ The risk that Kernel Holding S.A.’s governance and compliance processes may fail to prevent regulatory penalties or reputational harm, both

at operating subsidiaries and in joint ventures; and

→ The risk that Kernel Holding S.A.’s insurance policies may provide inadequate coverage.

Strategic (Business) risks:

1. Logistics disruption

2. Loss of critical infrastructure

3. Low global soft commodity prices

4. Loss of inventories

5. Shortfall of proceeds from renewable energy

sale

Financial risks:

6. Liquidity associated risks

Operational risks:

7. Trade position management issues

8. Credit and counterparty risks

9. Investment projects management

10. Information security and IT

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Risk management continued

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Kernel FY2023 Top-10 risks and mitigating factors

Risk

Possible impact

Mitigating factors

1. Logistics

disruption:

closed Ukrainian

seaports due to

the war

• Reduction in export volumes of grain, sun-

flower oil and meal, in case of continued dif-

ficulties with export of agriproduce via the

Ukrainian Black Sea ports (a usual and most

convenient export route for Ukrainian agricul-

tural products);

• Growing logistics costs (railway in Ukraine

and EU, truck and barges services) caused

by substituting cheap sea freight with more

expensive auto, railway and river logistics

with multi-modal transshipment. It implies

negative impact on margins including loss-

making grain export business;

• Increase in the shipment time resulting in

more working capital required; quality deteri-

oration of goods due to long-time multi-modal

transportation.

→ Establishing alternative export routes by the railway/trucks

through Ukraine-EU border and by barges/vessels through Ukrainian

Danube river ports;

→ Acquisition and/or development of new logistics facilities allow-

ing to transship exported goods from 1520 mm railway gauge track

(Ukrainian) to 1435 mm gauge (European) in near-border regions of

Ukraine and in neighboring countries; usage of mobile transship-

ment systems for the same purposes;

→ Procurement of special containers for their usage in internal rail-

way shipments and subsequent transshipment on the European lo-

gistics facilities;

→ Cooperation with international logistics companies which are ca-

pable of providing the Company with complex logistics services by

carrying railway freight in Ukraine, as well as in Europe;

→ Cooperation with the seaports and terminals located in the Baltic

Sea water area (Poland, Germany, Baltic states) and in the Black

Sea region (Romania);

→ Securing transshipment capacities in Ukrainian Danube river

ports: extension of the transshipment quotas with local terminals, in-

vestments in the development of own river port infrastructure, invest-

ments in own fleet expansion (barges, tankers and bulkers).

2. Loss of

critical

infrastructure

• Undermined earnings generation capac-

ity due to potential loss of critical infrastruc-

ture (export terminals, oil-extraction plants,

key silos)

→ Diversified asset base located relatively far from the regions of ac-

tive military actions;

→ Grain and oil transshipment agreements with third-party export

terminals.

3. Low global

soft commodity

prices: grain

and oilseeds

• Undermined profitability of Group’s Farm-

ing segment (which is always in naturally

long position as a typical upstream business)

in case of low global grain prices and low

sunflower seed prices in Ukraine.

→ Hedging grain prices: we use various hedging tools, including CME

corn and soybean futures and options, forward contracts for the Black

Sea origin premium and direct forward contacts (if available). Physi-

cal delivery forward contracts (if available) are typically used for

shorter duration hedging, normally within six months;

→ Longer period of crop sales: we start selling next year’s crop as

soon as we have the initial understanding of the next year’s produc-

tion costs, considering also the entire value chain margin. Selling of

FY2023 crop is complicated by the uncertainty in the grain corridor

functioning;

→ Deep analysis of global soft commodity fundamentals: Avere re-

search and trading unit provides insights into the global soft commod-

ity market, guiding the selection of proper timing and pricing of our

hedging operations.

3. Low com-

modity prices:

sunflower oil

• Compressed margins in Oilseed Pro-

cessing segment: low prices for sunflower

oil reduce combined earnings shared by

farmers and crushers in Ukraine in the short

term and discourage farmers from expansion

of acreage under sunflower in the long term.

→ “Balanced book” policy employed by the Company reduces the im-

pact of the commodities’ prices fluctuations by price and volumes

hedging. Such a policy presupposes arrangement of the forward con-

tracts for the sunflower seeds sales, alongside with the procurement

of the same sunflower seeds from farmers. In such a manner, the

Company reduces the risk exposure by ensuring the sales volumes,

as well as locking the selling price. Deviations from the balanced

book approach may appear during the business disruptions caused

by the war in Ukraine;

→ More intense procurements at the beginning of the season

(when a huge supply of seeds post-harvest allows for negotiating

more attractive sunflower seed prices) to partially mitigate long-term

sunflower oil price weakness.

4. Loss of

inventories

• Deterioration of the quality of inventories

(grains, oilseeds, sunflower oil and meal) be-

ing 1) stored for the excessively long time pe-

riod without proper quality maintenance; or 2)

transported via new routes with untested

quality controls;

• Physical loss of inventories stored in the

→ Expanding Group’s export capacities via alternative routes;

→ Regular inventory inspection of the commodities stored in the

third-party-owned silos;

→ First-priority relocation and export of inventories stored on the third-

party-owned silos or Group assets located in regions with high dam-

age risk.

→ Investments into additional storage capacities (including plastic

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Risk management continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Kernel FY2023 Top-10 risks and mitigating factors

Risk

Possible impact

Mitigating factors

Group-owned and third-parties’ storages

damaged as a result of the war in Ukraine;

• Loss of crops in the fields and/or deterio-

ration of corn quality in Group’s Farming

segment due to delayed/disrupted 2022 har-

vesting campaign as a result of the grain silo

storage deficit in Ukraine given the all-time

high carry-over grain stock.

silo bags); signing of long-term contracts with third-party storage ser-

vice providers.

5. Shortfall of

proceeds from

sales of renew-

able energy

• Extended payback period of our renewable

energy investments due to

o the reduction in the feed-in tariff for energy

produced from biomass; and/or

o introduction of industry-specific taxation

→ Maintaining direct sales to third parties as an alternative sunflower

husk distribution channel;

→ Investigation of opportunities to insure against the change in the

feed-in tariff.

• Extended payback period of our renewable

energy investments due to delay in receiva-

bles collection from the Guaranteed Buyer

regarding payments for the supplied renewa-

ble energy.

→ Investigation of opportunities on active claim work against the

Guaranteed Buyer on fulfillment of its obligations.

• Extended payback period of our renewable

energy investments due to obligation to sell

to the grid only the difference between the

produced energy and energy consumed by

the whole oilseed-processing plant.

→ Potential CHP plants assets spin-off into a separate legal entity not

related with subsidiaries engaged in oilseed processing.

6. Liquidity as-

sociated risks

• Lack of liquidity to properly service the

outstanding debt → potential business dis-

ruptions caused by creditors in case of hos-

tile actions undertaken, and limited access to

the additional credit sources;

• Difficulties with securing working capital fi-

nancing for farming and oilseed origination

→ suboptimal crop production technology

applied in Farming; lost margin in Oilseed

Processing.

→ Negotiating with state-owned banks in Ukraine on securing addi-

tional credit lines;

→ Discovering options of new working capital and long-term financing

to be provided by International Financial Institutions;

→ The perfect Group’s credit history allowed to obtain waivers for prin-

cipal repayments up to 30 September 2022 for all bank loans matur-

ing in due time together with a cash-sweep mechanism introduced

for pre-export facilities; new waivers for postponement of principal

repayments for additional 9 months were submitted to the lenders in

August 2022. As of the date of publication of this report, we obtained

waivers to extend the terms of repayment of the principal of

US$ 627 million with the lenders and waiving of the debt covenants

and some other conditions by 30 June 2023. For the debt liabilities

totaling US$ 246 million we are in the process of formalizing similar

waivers.

7. Trade posi-

tion’s manage-

ment issues

• Losses arising from Group’s trade posi-

tion mismanagement. For example, an

open position in sunflower oil may have ad-

verse effect on the Company’s earnings in

case of significant movements in sunflower

oil price;

• Losses arising from Avere trading busi-

ness;

• Invocation of force majeure clauses under

export contracts according to GAFTA rules

due to the war in Ukraine.

→ Trade position control system:

o maximum limits on the position (long / short) with daily control.

Separate limits for various goods (e.g., for sunflower oil produced

from own seeds, sunflower oil produced from purchased seeds,

and sunflower oil purchased from third parties). Specific limits are

set for sunflower seeds procurement not covered by sunflower oil

sold. Special approvals are required to exceed the limits.

o a part of positions is controlled by restricting Value at Risk and

drawdown limits with daily monitoring.

o constant monitoring of the impact of change of market prices on

existing trade position and improvement of the monitoring sys-

tem.

→ The “Balanced book” policy as described above;

→ Centralized contract execution and scheduling of shipments;

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Risk management continued

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Kernel FY2023 Top-10 risks and mitigating factors

Risk

Possible impact

Mitigating factors

8. Credit and

counterparty

risks

• Defaults of third-party farmers under fi-

nancing received from the Group

(including Open Agribusiness program);

• Losses arising due to Group’s counterpar-

ties non-performing their trade obligations.

→ Constant monitoring of solvency and business performance of the

farmers who received financing from the Group;

→ Negotiating with farmers on extending the obligations repayment pe-

riod or agreeing on alternative ways of repayments;

→ Active restructuring and claim work against counterparties in de-

fault.

9. Investment

projects man-

agement

• Extra spending beyond budgets, associ-

ated with the conservation of several projects

due to the war in Ukraine;

• Lost profits due to execution delays caused

by unsafe working conditions on the projects’

location, associated with active military ac-

tions proceeding in Ukraine and constant

threat of the air-missile strikes.

→ Strong in-house expertise in greenfield projects execution (includ-

ing Bandurka greenfield processing plant, Balyn, Vesnianka and

Lazirky silos etc.) with dedicated team of experienced professionals

to manage new projects;

→ Rigorous project management. All projects are carefully analyzed

and properly documented. Each project is organized by a charter of

the investment project, which defines goals, budget, delivery mile-

stones, schedules, deadlines, project team, definition/evaluation/re-

sponse to the project risks, assessment of business case and feasi-

bility study. In case of necessity, we organize quality control of project

documentation for investment construction projects by an independ-

ent expert company. Technical specifications for new construction

projects are evaluated, amended and approved by all related busi-

ness segments;

→ Proper oversight including internal cost benchmarking among vari-

ous projects, budget control before signing contracts and making pay-

ments, deep involvement of the investment committee and supervi-

sion from the strategic committee;

→ Conducting open and closed tenders to determine the best offers;

→ Involvement of suppliers with high credibility rating;

→ Proper GR management to interact with state regulatory / permitting

authorities at the early project stages to minimize delays;

→ Insurance of construction and assembly works.

10. Information

security and IT

• The loss or disclosure of key information

may threaten business operations and devel-

opment of the business;

• Interruption of business processes and

decisions which are dependent on the con-

tinuity of IT applications and infrastructure.

• Leakage of the information stored at assets

currently occupied by Russia;

• Cyber-attacks on the Group’s IT infrastruc-

ture;

• Damage to the Group’s cloud IT infrastruc-

ture occurred due to the military actions in

Ukraine; lack of access to cloud services pro-

vided outside of Ukraine.

→ Backup data center was relocated to Lviv (Western Ukraine);

→ Access to the IT systems denied at night for developers and con-

tractors;

→ Implemented IT business continuity and data recovery policy;

→ Multifactor authentication is being implemented to reduce the risk

of documents, correspondence, and other confidential data leakage;

→ Password policy, access control for external users to company IT

systems; Privileged access management solutions.

→ Regular testing of IT recovery plan; regular vulnerability testing

from inside and outside;

→ Patch management policy – regular installations of critical and se-

curity patches on servers and workstations;

→ Special solution to combat the advanced persistent threat (APT) and

0-day virus attacks;

→ Implementation of incident and change management processes in

the IT infrastructure;

→ Improving the maturity of the access management process by auto-

mating the process of reviewing access rights.

→ Regular training and testing of employees for knowledge and com-

pliance with information security rules.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Alternative Performance Measures

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

To comply with ESMA Directive on Alternative

Performance Measures (“APMs”), Kernel

Holding S.A. (hereinafter “the Group”) pre-

sents this additional disclosure, which en-

hances the comparability, reliability and com-

prehension of its financial information.

The Group presents its results in accordance

with generally accepted accounting principles

(IFRS), but nonetheless, management con-

siders that certain supplemental non-IFRS

measures, such as

• EBITDA;

• EBITDA margin;

• Segment EBITDA;

• Segment EBITDA margin;

• Investing Cash Flows net of Fixed As-

sets Investments;

• Net Fixed Assets Investments;

• Operating Cash Flows before Working

Capital Changes;

• Free Cash Flows to the Firm;

• Debt Liabilities;

• Net Debt;

• Commodity Inventories;

• Adjusted Net Debt; and

• Adjusted Working Capital;

(together, the ‘Alternative Performance

Measures’) provide investors with a supple-

mental tool to assist in evaluating current busi-

ness performance.

The Group believes the Alternative Perfor-

mance Measures are frequently used by se-

curities analysts, investors, and other parties

interested in evaluating companies in the

Group’s industry. The Alternative Perfor-

mance Measures have limitations as analyti-

cal tools, and investors should not consider

any of them in isolation or any combination of

them together as a substitute for analysis of

the Company’s operating results as reported

under IFRS. Other companies in the industry

may calculate these Alternative Perfor-

mance Measures differently or may use them

for different purposes than Kernel Holding

S.A, limiting their usefulness as comparative

measures. Each of the Alternative Perfor-

mance Measures is defined below.

Before FY2019, the Group used to report such

APMs as Funds from Operations and Free

Cash Flows, but since FY2019 the Group

consider these metrics as not relevant any-

more, being distortive going forward. The first

APM included purchases of property, plant

and equipment distorting the operating cash

generation capacity of the Group given the

current heavy CapEx cycle for the Group. The

second APM included dividends paid, thus

distorting the cash flow available to repay debt

In other documents (e.g. listing particulars) the Group could use the term Adjusted EBITDA, which is calculated as profit before income tax adding back net finance costs,

net foreign exchange gain, net other expenses, share of income/(loss) of joint ventures, and amortization and depreciation, and coming to the same result as EBITDA

and distribute dividends to shareholders. In-

stead, two additional APM’s were introduced

(as defined below): Operating Cash Flows

before Working Capital Changes and Free

Cash Flows to the Firm.

EBITDA and EBITDA margin

The Group uses EBITDA

as a key measure

of operating performance, and it is defined as

profit from operating activities adding back

amortization and depreciation.

The Group defines EBITDA margin as

EBITDA divided by revenue during the re-

ported period.

Kernel Holding S.A. views EBITDA and

EBITDA margin as the key measures of the

Group’s performance. The Group uses

EBITDA and EBITDA margin in its public re-

porting, which is also related to the listing of

Company’s equity on the Warsaw Stock Ex-

change. The Group believes that these

measures better reflect the Group and its sub-

sidiaries’ core operating activities and provide

both management and investors with infor-

mation regarding operating performance,

which is more useful for evaluating the finan-

cial position of the Group and its subsidiaries

than traditional measures, to the exclusion of

external factors unrelated to their perfor-

mance.

EBITDA and EBITDA margin have limitations

as analytical tools, and investors should not

consider these measures in isolation or in any

combination with Non-IFRS Measures as a

substitute for analysis if the Group’s operating

results as reported under IFRS. Some of

these limitations are as follows:

• EBITDA and EBITDA margin do not reflect

the impact of finance costs, significance of

which reflects macroeconomic conditions

and have little effect on the Group’s operat-

ing performance;

• EBITDA and EBITDA margin do not reflect

the impact of taxes on the Group’s operat-

ing performance;

• EBITDA and EBITDA margin do not reflect

the impact of depreciation and amortization

on the Group’s performance. The assets of

the Group, which are being depreciated

and/or amortized, will need to be replaced

in the future and such depreciation and

amortization expenses may approximate

the cost of replacing these assets in the fu-

ture. By excluding this expense from

EBITDA and EBITDA margin, such

measures do not reflect the Group’s future

cash requirements for these replacements;

• EBITDA and EBITDA margin do not reflect

the impact of share of income / loss of joint

ventures, which are accounted under equity

method;

• EBITDA and EBITDA margin do not reflect

the impact of foreign exchange gain/(loss),

which the Group does not consider to be

part of its core operating performance be-

cause the main difference arises on trans-

actions between entities of the Group with

different functional currencies;

• EBITDA and EBITDA margin do not reflect

the impact of other expenses; as such ex-

penses are not a part of Group’s core oper-

ations.

…………………………………………………………………………………………………………………………………………………...

Reconciliation of profit before income tax to EBITDA and EBITDA margin:

in thousand US$ except the margin

FY2021

FY2022

Profit from operating activities

689,293

90,667

add back:

Amortization and depreciation

116,486

129,676

EBITDA

805,779

220,343

Revenue

5,594,800

5,331,545

EBITDA margin

14.4%

4.1%

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Alternative Performance Measures continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Segment EBITDA and Segment

EBITDA margin

The Group uses Segment EBITDA and Seg-

ment EBITDA margin as the key measures

of segment operating performance. The

Group defines Segment EBITDA as

profit/(loss) from operating activities adding

back amortization and depreciation.

The Group defines Segment EBITDA margin

as Segment EBITDA divided by the segment

revenue during the reporting period.

Investing Cash Flows net of

Fixed Assets Investmnets

The Group uses Investing Cash Flows less

Net Fixed Assets Investments as a measure

of its expenditures on investments other than

property plant and equipment and it is defined

as net cash used in investing activities adding

back:

• purchase of property, plant and equipment;

• proceeds from disposal of property, plant

and equipment.

Net Fixed Assets Investments

The Group uses Net Fixed Assets Invest-

ments as a measure of its expenditures on

fixed assets maintenance and it is defined as

net cash used in investing activities less In-

vesting Cash Flows net of Fixed Assets In-

vestments or alternatively may be calculated

as cash used for purchase of property, plant

and equipment less proceeds from disposal of

property, plant and equipment.

Operating Cash Flows before

Working Capital Changes

The Group uses Operating Cash Flows as a

measure of the cash generation of its core

business operations and it is defined as net

cash generated by operating activities less

changes in working capital, including:

• change in trade receivables and other fi-

nancial assets;

• change in prepayments and other current

assets;

• change in restricted cash balance;

• change in taxes recoverable and prepaid;

• change in biological assets;

• change in inventories;

• change in trade accounts payable; and

• change in advances from customers and

other current liabilities.

…………………………………………………………………………………………………………………………………………………...

Reconciliation of net cash used in investing activities to Net Fixed Assets Investments:

in thousand US$

FY2021

FY2022

Purchase of property, plant and equipment

(178,296)

(119,678)

Proceeds from disposal of property, plant and equipment

5,855

5,876

Net Fixed Assets Investments

(172,441)

(113,802)

…………………………………………………………………………………………………………………………………………………...

Reconciliation of net cash used in investing activities to Investing Cash Flows net of Fixed

Assets Investments:

in thousand US$

FY2021

FY2022

Net cash used in investing activities

(205,143)

(293,689)

Adding back:

Purchase of property, plant and equipment

(178,296)

(119,678)

Proceeds from disposal of property, plant and equipment

5,855

5,876

Investing Cash Flows net of Fixed Assets Investments

(32,702)

(179,887)

…………………………………………………………………………………………………………………………………………………...

Reconciliation of net cash generated by operating activities to Operating Cash Flows before

Working Capital Changes:

in thousand US$

FY2021

FY2022

Net cash generated by operating activities

459,842

(305,464)

Less:

Changes in working capital, including:

(43,967)

(793,842)

Change in trade receivables and other financial assets

(241,282)

232,076

Change in prepayments and other current assets

(13,538)

(58,369)

Change in restricted cash balance

1,819

Change in taxes recoverable and prepaid

(52,961)

(58,918)

Change in biological assets

71,909

141,024

Change in inventories

(90,153)

(937,306)

Change in trade accounts payable

64,468

15,126

Change in advances from customers and other current liabili-

ties

215,771

(127,507)

Operating Cash Flows before Working Capital Changes

503,809

488,378

…………………………………………………………………………………………………………………………………………………...

Calculation of Segment EBITDA and Segment EBITDA margin:

in thousand US$

FY2021

FY2022

Oilseed Processing

Profit from operating activities

27,759

(101,668)

plus Amortization and depreciation

23,424

31,384

Segment EBITDA

51,183

(70,284)

Segment revenue

1,746,938

1,681,004

Segment EBITDA margin

(4%)

Trading and Infrastructure

Profit from operating activities

333,348

213,161

plus Amortization and depreciation

25,961

23,593

Segment EBITDA

359,309

236,754

Segment revenue

4,857,117

4,534,606

Segment EBITDA margin

Farming

Profit from operating activities

395,686

147,214

plus Amortization and depreciation

65,039

72,192

Segment EBITDA

460,725

219,406

Segment revenue

657,133

635,223

Segment EBITDA margin

70%

35%

Other

Loss from operating activities

(67,500)

(168,040)

plus Amortization and depreciation

2,062

2,507

Segment EBITDA

(65,438)

(165,533)

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Alternative Performance Measures continued

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Sustainability

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Statements

Free Cash Flows to the Firm

The Group uses Free Cash Flows to the Firm

as a measure of the cash generation of its core

business operations and it is defined as the

sum of net cash generated by the operating ac-

tivities and the net cash used in investing ac-

tivities.

Commodity Inventories

The Group uses Commodity Inventories

(hereinafter ‘CI’), as an additional measure of

its liquidity, which the Group uses to provide a

supplemental tool to assist in evaluating current

business performance and in calculating credit

ratios under certain of the Group’s financing ar-

rangements. The Group defines CI as agricul-

tural inventories, such as corn, wheat, sun-

flower oil, and other products that were easily

convertible into cash before the Russian inva-

sion of Ukraine given their commodity charac-

teristics, widely available markets and the inter-

national pricing mechanism. The Group used to

call such inventories as “Readily marketable

inventories”, but after the beginning of the war

in Ukraine the Group faced difficulties with sell-

ing such inventories, and therefore such inven-

tories cannot be considered as readily market-

able any longer.

Debt Liabilities

The Group uses three metrics as the measure

of its leverage and indebtedness, which con-

sists of Debt Liabilities, Net Debt and Ad-

justed Net Debt. The Group defines Debt Li-

abilities as the sum of:

• bonds issued;

• current bond issued

• interest on bonds issued;

• long-term borrowings;

• current portion of long-term borrowings;

• short-term borrowings;

• lease liabilities and

• current portion of lease liabilities.

The Group defines Net Debt as Debt Liabili-

ties less cash and cash equivalents. Finally,

the Group defines Adjusted Net Debt, as Net

Debt less commodity inventories.

Adjusted Working Capital

The Group uses Adjusted Working Capital

as a measure of its efficiency and short-term

liquidity and which is defined as current assets

(excluding cash and cash equivalents, and as-

sets classified as held for sale) less current li-

abilities (excluding the short-term borrowings,

the current portion of long-term borrowings,

current portion of lease liabilities, the current

bond issued, the interest on bonds issued,

and liabilities associated with assets classified

as held for sale).

…………………………………………………………………………………………………………………………………………………...

The following table shows the Group’s key inventories considered eligible for CI by type and the

amounts of such inventory that the Group treats as CI as in the periods indicated:

in thousand US$

As of 30

June 2021

As of 30

June 2022

Sunflower oil & meal

204,623

207,047

Sunflower seed

42,513

324,974

Grains

37,294

358,229

Other

47,597

63,673

Total

332,027

953,922

of which: Commodity Inventories

284,850

891,718

…………………………………………………………………………………………………………………………………………………...

Calculation of Debt Liabilities, Net and Adjusted Net Debts as on the dates indicated:

in thousand US$

As of 30

June 2021

As of 30

June 2022

Bonds issued

593,942

Current bonds issued

212,495

595,038

Interest on bonds issued

15,353

7,612

Long-term borrowings

227,740

Current portion of long-term borrowings

21,715

Short-term borrowings

13,888

1,093,087

Lease liabilities

287,154

200,441

Current portion of lease liability

37,338

39,111

Debt Liabilities

1,409,625

1,935,289

less: cash and cash equivalents

574,040

447,625

Net Debt

835,585

1,487,664

less: commodity inventories

284,850

891,718

Adjusted Net Debt

550,735

595,946

…………………………………………………………………………………………………………………………………………………...

Reconciliation of total current assets to Adjusted Working Capital as at the dates indicated:

in thousand US$

As of 30

June 2021

As of 30

June 2022

Total current assets

2,283,724

2,523,156

less:

Cash and cash equivalents

574,040

447,625

Assets classified as held for sale

287,068

Total current liabilities

916,815

1,643,148

add back:

Short-term borrowings

13,888

1,093,087

Current portion of long-term borrowings

21,715

Current portion of lease liabilities

37,338

39,111

Current bonds issued

212,495

Interest on bonds issued

15,353

7,612

Liabilities associated with assets classified as held for sale

116,848

Adjusted Working Capital

1,093,658

1,401,973

…………………………………………………………………………………………………………………………………………………...

Calculation of Free Cash Flows to the Firm:

in thousand US$

FY2021

FY2022

Net cash generated by operating activities

459,842

(305,464)

Net cash used in investing activities

(205,143)

(293,689)

Free Cash Flows to the Firm

254,699

(599,153)

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Alternative Performance Measures continued

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Report

Sustainability

Corporate

Governance

Financial

Statements

The Management believes that these APMs assist in providing additional useful information on the underlying trends, performance and position

of the Group. APMs are used by the Management for performance analysis, planning, reporting and incentive setting purposes. The measures

are also used in discussions with the investors, investment analyst community and credit rating agencies.

APM

Calculation

Why APM is the most important for management

EBITDA

Profit from operating activities adding back amortiza-

tion and depreciation.

EBITDA is the main metric used by the management of the

Group to measure operating performance. It is also widely used

by investors when evaluating businesses, and by rating agencies

and creditors to evaluate the leverage.

EBITDA margin

EBITDA divided by revenue during the reported period.

EBITDA margin is a metric widely used to measure profitability

of Group's operations.

Segment EBITDA

Segment profit from operating activities adding back

amortization and depreciation.

EBITDA is the main metric used by management of the Group to

measure segment operating performance.

Segment EBITDA

margin

Segment EBITDA divided by segment revenue during

the reporting period.

Segment EBITDA margin is the metric widely used to measure

profitability of Group's segment operations.

Investing Cash

Flows net of

Fixed Assets In-

vestments

Net cash used in investing activities adding back pur-

chase of property, plant and equipment, and proceeds

from disposal of property, plant and equipment.

As the Group has grown and developed through acquisitions, this

APM helps to monitor the M&A and other investing activities of

the Group.

Net Fixed Assets

Investments

Net cash used in investing activities less Investing

Cash Flows net of Fixed Assets Investments.

The Group is executing a solid investment program, and fixed

assets investment is an important measure to monitor capital ex-

penditure as a part of the execution of investment program.

Operating Cash

Flows before

Working Capital

Changes

Net cash generated by operating activities less

changes in working capital activities, including:

• change in trade receivables and other financial as-

sets;

• change in prepayments and other current assets;

• change in restricted cash balance;

• change in taxes recoverable and prepaid;

• change in biological assets;

• change in inventories;

• change in trade accounts payable; and

• change in advances from customers and other cur-

rent liabilities.

The Group uses this APM as a pre-working capital measure that

reflects Group’s ability to generate cash for investment, debt ser-

vicing and distributions to shareholders.

Free Cash Flows

to the Firm

Sum of net cash generated by operating activities and

net cash used in investing activities.

The Group uses this APM as it reflects the cash generating ca-

pability of the Group to repay debt and distribute dividends to

shareholders.

Commodity

Inventories

Agricultural inventories, such as corn, wheat, barley,

soybean, sunflower seed, meal and oil.

The Group uses this APM as an additional measure of its liquid-

ity, which the Group uses to provide a supplemental tool to assist

management and investors in evaluating current business per-

formance and in calculating credit ratios under certain of the

Group’s financing arrangements.

Debt Liabilities

Sum of bonds issued, current bonds issued, interest on

bonds issued, long-term borrowings, current portion of

long-term borrowings, short-term borrowings; lease lia-

bilities and current portion of lease liabilities.

The Group uses this APM, as it is a useful measure of the lever-

age of the Group, which is widely used by credit investors and

rating agencies.

Net Debt

Debt Liabilities less cash and cash equivalents.

The Group uses this APM, as it is a useful measure of the lever-

age of the Group, which is widely used by credit and equity in-

vestors and rating agencies.

Adjusted Net

Debt

Net Debt less commodity inventories.

The Group uses this APM as a supplemental measure of the

Group’s liquidity, which shows the amount of Debt Liabilities not

covered by cash and commodity inventories.

Adjusted

Working

Capital

Current assets (excluding cash and cash equivalents,

and assets classified as held for sale) less current lia-

bilities (excluding short-term borrowings, current por-

tion of long-term borrowings, current portion of lease li-

abilities, current bonds issued, interest on bonds is-

sued, and liabilities associated with assets classified as

held for sale).

The indicator of working capital is important for the Group, as the

Group is involved in trading and processing activities and hold

large volumes of inventories on the balance. The Group also in-

vests in business expansion, which needs working capital invest-

ments to increase efficiency. It is useful for users and investors

because it measures both a Group’s efficiency and its short-term

financial health. It also helps management to keep a business

operating smoothly and meet all its financial obligation within the

coming year.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

FY2022 performance

The concept of sustainable development or ESG

(environment, social, governance) was developed

to help businesses navigate turbulence in the mod-

ern world and to build their long-term value. Amid

the full-scale invasion of Ukraine by Russia, Kernel

as well as the whole business community in

Ukraine, learned first-hand the value of long-term

investment in building strong human capital, devel-

oping trusting relationship with the society, agility

and transparency of corporate governance. These

integral business values are at the core of deliver-

ing targets of our survivorship strategy, namely: to

save our employees, to save our operational activ-

ity and to save our country.

Geopolitical instabilities have also put in perspec-

tive the importance of decarbonization and climate

resilience as a critical component of the energy in-

dependence and, therefore, national security. Over

the FY2022, we have been undertaking and in-

depth research of Kernel’s role in the international

climate arena, identifying areas for improving our

climate corporate governance and analyzing busi-

ness opportunities, associated with low-carbon de-

velopment. This work was driven primarily by the

implementation of the EBRD-financed ‘Climate

corporate governance and low-carbon pathway’

project in partnership with EY. We remain commit-

ted to fulfilling our climate and ESG ambitions and

meeting expectations of our stakeholders despite

the challenges we face.

Building on the progress we have made within the

scope of this project and the overall performance of

Kernel’s sustainability function in FY2022, one of

the key highlights of this section is our first TCFD

disclosure, outlining:

• our climate governance approach, including

formal adoption of the Sustainability committee

at the Board of Directors and introduction of cli-

mate related KPIs

• assessment of climate-related physical and

transitional risks

• analysis of business opportunities associated

with low-carbon development

• evaluation of Scope 3 GHG emissions across all

15 categories in line with the Greenhouse Gas

Protocol

This year, for the first time, we have also disclosed

information on our sustainable economic activities

in line with the EU Taxonomy guidelines.

In terms of strengthening our human capital perfor-

mance, in FY2022 we updated our Diversity,

Equality and Inclusion policy to be aligned with

“The Best Practices for GPW Listed Companies

2021”, under which we aspire to reach at least 30%

of representation of each gender within the com-

pany’s corporate bodies, namely the Board of Direc-

tors and the Executive Management Team.

Low-carbon development becomes an integral pillar of national

security

Social spending in FY2022

US$ 26.3 million

6.7x y-o-y

Scope 1&2 GHG emissions in

FY2022

1,272 thousand tCO2

This sustainability report was

prepared in accordance with

the GRI Standards: Core option

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Key highlights

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

ESG Topics

Key indicators in FY2022

ENVIRONMENTAL

CAPITAL

Contribution to SDGs:

Energy management

• 6,881.4 TJ – total electricity consumption

• 1,966.6 MJ/t – energy intensity of sunflower seed pro-

cessing in FY2022

• 57.3 MJ/t-% – energy intensity of drying grain

• 398.4 MJ/t – energy intensity

Water and effluents man-

agement

• 3,354.7 ML – total volume of water withdrawn

• 864.4 ML – total volume water discharged

Waste management

• 59,263.6 tons – total volume of waste generated

• 52,827.8 tons – total volume of treated waste

Biodiversity management

• UN Global Compact “Partnership for Sustainability” award for

collaboration with beekeepers and promotion of payment for

ecosystems services principles in pollination

CLIMATE ACTION

Contribution to SDGs:

TCFD aligned disclosure

• 1,193.6 thousand tCO2e – total Scope 1 GHG emissions,

excluding 348.9 thousand tCO2 of biogenic emissions

• 78.5 thousand tCO2e – total Scope 2 GHG emissions (loca-

tion based)

• 83.3 thousand tCO2e – total Scope 2 GHG emissions (mar-

ket based)

• 773.8 thousand tCO2e – total Scope 3 GHG emissions

HUMAN CAPITAL

Contribution to SDGs:

Employment

• 10,233 – total number of employees

• 3,286 – total number of new hires

• 1,756 – total number of employee turnover

• HR PRO AWARD 2021 for Kernel Employee Data Center

• HR-brand Award 2021

• Top-100 rating in categories ‘Best employer’ and ‘Best HR di-

rector’

Training and career

advancement

• 152,804 – total number of training hours

• 1,777 – total number of employees, receiving regular per-

formance and career reviews

Occupational health and

safety

• 4 – total number of recordable work-related injuries, including

1 fatality

• 0.22 – lost time injury frequency rate

Human rights, diversity,

and inclusion

• Updated the Diversity, Equality, and Inclusion policy to be

aligned with “The Best Practices for GPW Listed Companies

2021”

SOCIAL CAPITAL

Contribution to SDGs:

Economic performance

• Disclosure in line with the EU Taxonomy

Support of local communi-

ties and society as a

whole

• US$ 26,271 thousand – total social spendings, includ-

ing contributions towards support of the Ukrainian Army and

humanitarian aid during the military time, as;well as support

of employees.

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

Sustainability: Environmental capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

ENVIRONMENTAL CAPITAL

Energy management

Our management approach to energy re-

sources and efficiency

Consumption of energy resources is one of

the most material indicators of our operational

activities. We constantly research and inte-

grate various approaches towards improve-

ment of our energy efficiency, which in turn re-

duces our contribution to the national volume

of GHG emissions. In addition, given our po-

tential to be the largest producer of electricity

from biomass in Ukraine, we seek to be a role

model at the regional agriculture market in

driving energy saving and climate actions.

Our management approach towards energy

resources and energy efficiency is rooted in

the corporate Code of Conduct and Environ-

mental protection policy. There are energy

managers within each business segment,

who are responsible for overseeing Kernel’s

energy-related operations and integrating en-

ergy efficiency measures. Indeed, the team of

nine specialists (Energy Management Ser-

vice) covers Oilseed Processing and Infra-

structure and Trading; in addition, there are

engineers on production sites, providing tech-

nical support of the energy system. Energy ef-

ficiency issues in the Farming segment,

namely efficient use of fuel by agricultural ma-

chinery, is managed by the Engineering ser-

vice; it is also responsible for exploring and

testing new technologies and machines, that

can help decrease fuel consumption.

Our energy management performance

In FY2022, the overall consumption of energy

has decreased mainly due to unevenness of

our production operations, namely work of our

oilseed crushing plants, over the timeframe

between February and June 2022. The rea-

son for such unevenness was a high threat of

disruptions as the result of military actions in

Ukraine. This was also the reason for a signif-

icant decrease in the total volume of pro-

cessed sunflower seeds, resulting in higher

energy intensity indicator in FY2022.

Our Oilseed Processing segment is the main

consumer of electricity, and its most signifi-

cant energy intensive technological pro-

cesses include drying of raw materials, wet

heat treatment of raw materials, cooling, oil

treatment by steam and cooling, drying and

cooling of meal, steam condensation and heat

recovery processes. Natural gas is mostly

consumed by the Infrastructure and Trad-

ing, particularly by silos, as it is used grain

drying operations, whereas the most energy

intensive processes are purification and dry-

ing of production, handling and shipment of

raw materials and storage. With regards to the

Farming segment, it predominantly uses liq-

uid fuel, such as diesel and petroleum, in ag-

ricultural machinery.

Over the reporting period the company pro-

duced and sold to the national energy grid a

total of 322,5 terajoules of electricity, pro-

duced from biomass by three combined heat

and power plants (CHP), namely those oper-

ating at Kropyvnytskyi, Poltava and ‘Ukrainian

Black Sea Industry’ oil extraction plants

(OEP). A particular value from our ‘green’

electricity is that we do not produce biomass

separately to be combusted on our CHPs; but

rather use sunflower seed husk, which is a

side product of the main operational activity

and is approved as a feedstock for advanced

biofuels in accordance with Annex IX.A. of

RED II EU Directive. These CHPs are a part

of our US$ 248 million investment project, the

latter aims to result in a total of seven CHPs

with a total installed electric capacity of

94MW, making Kernel the largest in Ukraine

producer of electricity from biomass.

In addition to selling electricity to the national

energy grid, it is also used for own needs,

mainly for production steam on our OEPs. For

that reason, in FY2022, more than 90% of the

total volume of energy consumed by Kernel’s

Oilseed Processing division was renewable,

demonstrating a great potential for our oil ex-

traction operations to become net zero in the

future. Our efforts to improve energy effi-

ciency within the Oilseed Processing seg-

ment are focused primarily on the optimization

of steam usage in operations. In FY2022, Ker-

nel launched a Group-wide “Climate corpo-

rate governance and low-carbon pathway”

project aimed to undertake an in-depth anal-

ysis of our operations (this included several

visits of the team consultants to our assets to

evaluate energy-related operations firsthand)

from the perspective of possible energy sav-

ing and emission reduction measures. Build-

ing on the results of this analysis, we are cur-

rently researching the potential to save up to

15% of steam and plan to undertake pilot test-

ing of relevant approaches on Poltava OEP in

the future.

In our Farming segment, our energy effi-

ciency approaches target our agriculture ma-

chinery fleet. We constantly research the mar-

ket and development projects of major global

producers of agriculture machines; and up-

grade our machines every 5-6 years to re-

place them with more efficient options in terms

of fuel consumption. Under the “Climate cor-

porate governance and low-carbon path-

way” project, we launched a dialogue with

global producers of agriculture machines,

namely John Deere and CNH Industrial, to ex-

plore low-carbon options available on the

market, including machines working on bio-

methane and biodiesel. We seek to test such

solution on our fields in the following years.

In addition, our existing machines, especially

fuel-intensive, are equipped with GPS track-

ers and remote system of monitoring fuel

consumption. These help us to optimize us-

age of fuel and decrease fuel intensity of

standard operations. For example, the opera-

tion of deep loosening with mineral fertilizers

application executed by a machine using

RTK-guided autopilot system, which allows to

avoid overlaps in application, saving around

4.2% of both fuel and fertilizers. In FY2022,

we also increased the area coverage of

drone-sprayers to 52,5 thousand hectares.

Drone sprayers allow to reduce diesel

consumption by 1.5-2.5 liters per hec-

tare

RTK-guided autopilot system saves

4.2% of fuel and fertilizer avoiding appli-

cation overlaps

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Environmental capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Key energy management indicators

FY2020

FY2021

FY2022

Energy consumption, terajoules

Non-renewable fuel consumed

2,574.7

3,165.0

2,915.1

Natural gas

840.4

1,373.1

1,578.8

Oilseed Processing

130.7

321.9

149.1

Infrastructure and Trading

678.2

1,007.3

1,394.9

Farming

31.2

44.0

34.7

Other

0.3

Diesel

1,550.8

1,643.5

1,247.3

Oilseed Processing

24.5

10.4

8.2

Infrastructure and Trading

22.9

18.5

34.6

Farming

1,452.9

1,528.4

1,198.3

Other

50.4

86.3

6.2

Petroleum

75.7

58.1

39.7

Oilseed Processing

2.8

2.0

1.2

Infrastructure and Trading

7.8

5.6

4.5

Farming

53.2

39.6

25.8

Other

12.0

10.9

8.2

LNG

107.8

90.2

49.3

Oilseed Processing

0.7

0.6

0.3

Infrastructure and Trading

4.2

3.1

2.5

Farming

100.9

84.9

45.3

Other

2.0

1.7

1.2

Renewable fuel consumed (sunflower seed husk)

3,627.5

3,557.6

3,551.5

Electricity

902.5

894.3

736.4

Oilseed Processing

699.9

668.6

512.3

Infrastructure and Trading

134.7

152.4

171.9

Farming

64.4

69.6

49.7

Other

3.4

3.6

2.5

Heating

3.1

0.9

Oilseed Processing

Infrastructure and Trading

1.9

Farming

0.1

Other

1.1

0.7

Electricity sold to the grid

65,5

160,5

322,5

Total energy consumption

7,039.2

7,459.5

6,881.4

Oilseed processing

4,420.3

4,400.1

3,900.1

Infrastructure and Trading

847.9

1,188.9

1,608.6

Farming

1,702.6

1,766.6

1,353.9

Other

68.5

104.0

18.8

Energy intensity indicators, megajoules

Energy consumed per ton of sunflower seed crushed

1,286.3

1,425.6

1,966.6

Energy consumed per ton-% of grain dried

65.1

57.8

57.3

Energy consumed per ton of harvested grain

523.7

589.5

398.4

Discrepancies between data in this and previous reports (FY2021 and FY2020) are associated with clarifications of raw data and alignment of conversion factors

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Environmental capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Water and effluents management

Our management approach to water re-

sources and efficiency

We constantly improve our approaches to-

wards rational water consumption and treat-

ment of wastewater, aiming to both increase

water use efficiency and decrease our impact

on the environment. Our approach is embed-

ded in the Environmental protection policy.

Kernel undertakes water withdrawal in line

with valid ‘Special water use’ permits, being

fully compliant with the national legislation.

Kernel closely monitors operations in areas

with water stress. Our water use accounting

system includes information on assets loca-

tion in terms of water stress zones: three of

our oil extraction plants withdraw water in ar-

eas with a high water stress; and three plants

operating in areas with medium water stress.

In addition, we undertake strict measures to

prevent water contamination from our opera-

tions, the highest risk of which is associated

with farming activities. Specifically, we ensure

precise application of fertilizers and pesticides

to soil, allowing to control the risk of their run-

off to water bodies; in addition, we do not have

farming and manure management operations

in the protection buffer zones of water bodies.

Our water management performance

In the Oilseed Processing segment water is

used primarily for technical purposes, namely

production of steam, and domestic needs.

Each of our OEPs has an emergency water

reserve, used in case of fire; and five of our

plants have stormwater collection systems al-

lowing to prevent contamination of soil and

groundwater with oil residue and solid parti-

cles. The collected stormwater is not used in

the production processes, due to food safety

requirements limitations.

For our crop production operations natural

precipitations are the main source of water,

and less than 1% of our landbank is irrigated.

For that reason, irrigation purposes accounts

for the largest share of the total volume of wa-

ter used by the Farming segment. In

FY2022, we slightly increased the area cover-

age of our irrigation operations by 607 ha. We

apply advanced monitoring techniques to ac-

curately identify the water needs of our crops

and exploit the modern pumping and distribu-

tion equipment, allowing minimal technical

losses of water. Kernel’s irrigation experts

have been actively involved in the working

group, coordinated by the Ministry of Agricul-

ture Policy of Ukraine, aimed at development

of the foundation for implementation of Law of

Ukraine “On organization of water users and

stimulation of hydrotechnical melioration of

land”, adopted in March 2022. The Law pro-

vides for establishment of water use organi-

zations (WOUs), aiming to drive

development of irrigation systems in Ukraine

and making them accessible for farmers. In

Farming division water is also used for the

purposes of animal husbandry and for techno-

logical purposes, such as dilution and applica-

tion of crop protection chemicals and fertiliz-

ers. In case of animal husbandry, we reduce

water usage, by applying a dry method of re-

moving manure from cowsheds, using con-

veyor scrappers. We also constantly test and

integrate approaches to reduces water use in

the process of agrochemicals application.

In addition to the water saving measures on

the operational level, Kernel invests in tech-

nological solutions that allow to increase wa-

ter use efficiency in the long-term perspective.

On our Bandurka and Black Sea Industry

CHPs we exploit dry cooling systems, which

are three times more expensive in compari-

son to traditional wet cooling systems but al-

low us to save up to 320 megaliters of water

………………………………………………………..…..…..…..…..…..…..…..…..

Map of Kernel’s presence in areas with water stress in Ukraine

Husk

(160

kg)

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..

Scheme of Kernel’s water management cycle at oil extraction plants

Bottled sun-

flower oil

Husk

(160 kg)

Scheme of Kernel’s water management cycle at oil extraction plants

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Environmental capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

annually.

In FY2022, we continued implementing and

evaluating economic effects from the 2-year

program, launched in FY2021, on moderniza-

tion of condensate recovery systems at Kro-

pyvnytskyi oil extraction plant. Such techno-

logical approach would allow to save up to 8

megaliters of water annually.

Our management approach to

wastewater treatment

All wastewater, generated during operations,

undergoes treatment before being discharged

to water bodies. Three oil extraction plants op-

erate full-cycle water treatment systems,

which provide biological, physical, and chem-

ical purification.

In FY2022, we purified 411.3 megaliters of

wastewater on our own water treatment sys-

tem. If an oil extraction plant is connected to a

municipal wastewater treatment plant

(WWTP), wastewater is pre-treated on the

site to meet requirements of a WWTP and is

directed at a proper treatment externally. The

quality of treated wastewater is monitored by

our laboratories, that analyze water samples

in line with the Ukrainian national regulation

on maximum permissible discharges of pollu-

tant, maximum levels of which are specified in

a “Special water use” permit.

Such permits set limitations to volumes of

withdrawn water and/or on volumes and

quality of effluents based on surveys that de-

fine hydrological conditions, baseline water

quality and assimilation capacity of a water

body.

The permitting authority uses information on

water use within a watershed or aquifer to set

permit conditions in a way that balances inter-

ests of all users and keeps cumulative pollu-

tion levels within the national water quality

standards. The regulatory requirements were

the only criteria for setting permit conditions

that define the quality of our effluents. Param-

eters of wastewaters, controlled during labor-

atory testing, include eight substances, as

well as biological (five-day) and chemical de-

mands of oxygen. In FY2022, there were no

incidents of non-compliance with quality re-

quirements of wastewater quality.

In FY2022 we launched a procedure of Envi-

ronmental Impact Assessment for the project

on renovation of an onsite wastewater treat-

ment system at Kropyvnytskyi oil extraction

plant. Modernization of this system will allow

address specific parameter of wastewater, in-

cluding equalization, correction of pH, reagent

flotation and its preparation for dehydration,

as well as mechanical dehydration of sludge.

The expected treatment capacity of 0.15 meg-

aliters/day.

Waste management

Our management approach to waste gen-

eration and treatment

Minimization of waste, as well as its proper

treatment is one of the key indicators of our

operational efficiency. We seek to identify and

implement measures towards reduction of the

overall volume of waste through moderniza-

tion of technological process, including reuse

of waster across divisions, contributing to the

long-term sustainability of our business, as

well as through establishment of controls over

waste generation, transportation and storage.

This approach is enriched in the Environmen-

tal protection policy and Code of Conduct. In

case when generated waste does not have di-

rect application in the production chain, it is

transferred to licensed providers of waste dis-

posal or recycling services, selected from the

official list of license holders provided by the

Ministry of Environmental Protection of

Ukraine. The license conditions are set to en-

sure operator’s capacity for safe handling of

collected waste. The Ministry is responsible

for verification of compliance of licensees’ op-

erations with these conditions. Violation leads

to license revocation.

We expect the same level of responsibility re-

garding waste management from our contrac-

tors, working on Kernel’s sites: standard

clauses of our agreements oblige contractors

to control generation of the waste and prevent

mixing of different types of waste. In line with

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..………….

Key water management indicators

FY2021

FY2022

Total

Areas with water

stress

Total

Areas with water

stress

Water withdrawal, megaliters

7,069.8

844.0

3,354.7

818.9

by source

ground water

1,467.6

50.4

1,025.6

628.2

surface water

4,798.8

716.2

1,481.2

8.2

municipal suppliers (third-party water)

803.5

77.4

847.8

184.4

by business segment

Oilseed Processing

1,753.2

603.9

1,508.5

777.9

Infrastructure and Trading

21.5

1.8

23.5

1.9

Farming, incl.:

5,295.1

238.4

1,822.7

41.0

Irrigation

4,410.6

1,454.9

Animal husbandry

156.7

166.0

Water discharge, megaliters

1,121.7

361.7

864.4

329.4

by types of destination

surface water

361.7

259.1

municipal suppliers (third-party water)

760.0

605.3

70.4

by business segment

Oilseed Processing

1,119.8

361.7

854.4

329.4

Infrastructure and Trading

1.9

10.0

Discharge of substances, tons

dry residue (mineralization)

526.7

237.6

768.9

160.4

sulfates

108.1

63.1

198.2

98.0

chlorides

92.6

46.5

196.2

71.8

suspended particles

38.6

1.5

131.2

16.6

fats

7.0

0.0

12.8

4.2

other substances

146.8

8.5

105.3

79.7

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such obligation, Kernel may request contrac-

tors to provide copies of agreements with pro-

viders of waste disposal and recycling ser-

vices.

Our waste management performance

In the Farming segment, the waste from op-

erational activities include:

• Crop residue, that is normally left distrib-

uted on field and might also be incorporated

in soil or mulched. Part of straw is used for

the purpose of cattle management as a

bedding. No crop residue is burned on field,

as it is strictly forbidden.

• Pesticides packaging is collected sepa-

rately, depending on the class of hazard

and transferred to a licensed provider of

waste disposal services.

• Manure is the main type of waste from ani-

mal husbandry. After manure is removed

from cowsheds with scrapper conveyors, it

is transported to embanked storages where

it undergoes natural composting in piles. All

storages are located outside of settlements,

in leeward areas; no storage is located in

close proximity to water protection buffer

zones to avoid contamination. Manure is

mainly applied in fields as organic fertilizer,

and part of it is distributed among local

communities for their gardening purposes.

In FY2022, we applied 71 thousand tons of

composted manure mixed with straw as a

fertilizer.

• Cows’ carcasses are disposed in regis-

tered bio-thermal pits in compliance with re-

quirements of the State Veterinary Commit-

tee.

In terms of milk production, this process does

not involve generation of waste related to

packaging, because final products are sold in

bulk.

In the Infrastructure and Trading segment

generation of waste is associated mainly with

grain purification process and include:

• Fraction of substandard grain and crop

residue, separated from main products,

and used mainly as an input for cattle fod-

der in our animal husbandry business and

is sold to third parties. In addition, we use

crop residue as a fuel on one of our drying

installations for the generation of steam.

The main matter of the Infrastructure and

Trading business, namely grain, is sold in bulk

and does not involve generation of additional

waste associated with packaging.

In the Oilseed Processing segment, the

main source of waste and co-products is

oilseed crushing in the process of sunflower

oil production, generating:

• Sunflower seed husk, that is used as a

fuel, partly for satisfying own technological

needs of our oil extraction plants (steam

generation); whereas the major share of the

total volume is used as a biomass in elec-

tricity production by Kernel’s combined heat

and power plants (CHPs).

• Meal is used as an input for cattle fodder in

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..……..…..…..…..….

Scheme of Kernel’s waste management cycle

………………………………………………………………………………………………………………………………………

Key waste management indicators

tons

FY2021

FY2022

Volume of waste generated

47,568.8

59,263.6

including by class of hazard

1st class

55.6

283.0

2nd class

160.2

155.5

3d class

710.7

346.7

4th class

46,642.3

58,478.5

Volume of treated waste

47,568.8

52,827.8

including by management approach

Sold to 3d parties

30,946.7

36,424.6

Landfilling

9,739.2

9,494.1

Transferred for utilization

1,947.0

972.9

Used at enterprise

4,935.8

980.39

Transferred to other consumers

4,955.9

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our animal husbandry business and is sold

to third parties.

• Sunflower ash, from combustion in power

generation process, is used as a raw mate-

rial for production of fertilizers. Ash is valu-

able for its chemical composition, namely

its high potassium content and lack of haz-

ardous admixture. Applying ash in fields al-

low to return a part of harvested nutrients

back to soil.

The main final product in Oilseed Pro-

cessing business is crude oil sold in bulk for

further processing by customers. The remain-

ing volume of produced oil is refined, bottled,

and packed. Generation of waste, associated

with plastic and cardboard packages, takes

place downstream among customers.

Other types of waste occur as the result of op-

erational household activities, such as ma-

chinery maintenance, construction and engi-

neering works, and wastewater treatment.

Biodiversity management

Our management approach to biodiversity

protection

Given the nature of Kernel’s business of oper-

ations, specifically farming activities, we are

strongly committed to both minimizing our

negative impact on biodiversity, and undertak-

ing specific measures aimed at conserving

and boosting biodiversity. This approach is re-

flected in our Environmental protection policy.

The key principle in delivering this commit-

ment is ensuring a comprehensive and de-

tailed monitoring of our farming activities,

which we perform throughout our innovative

DigitalAgribusiness ecosystem. We apply

IT, AI and Big Data solutions to accumulate

information on fields and technological opera-

tions, allowing us to improve our practices of

Normalized Difference Vegetation Index quantifies vegetation by measuring the difference between near-infrared (which vegetation strongly reflects) and red light

(which vegetation absorbs). NDVI is a standardized way to measure healthy vegetation – the higher the NDVI, the healthier vegetation.

Law of Ukraine No 2456-XII “On Nature Reserve Fund of Ukraine”

precise farming, strengthen our risk manage-

ment approaches, as well as control interac-

tions and impact on natural ecosystems. We

exploit RTK-guided autopilot agriculture ma-

chinery on all our fields; we collaborate with

other companies, sharing the RTK signal, in-

creasing the area coverage where precise

farming is applied. We also monitor our fields

through remote sensing technologies by

collecting data, such as NDVI

, from satellites,

helicopters, and on-site data collection facili-

ties, which is then synchronized in databases

and analyzed with GIS (Geographic Infor-

mation Systems) programs. Additionally,

these analytical tools are made accessible in

operational activities on the ground: in their

everyday work our agronomists use tablets

with installed ‘Mobile Agronomist’ scouting

application, making the process of risk as-

sessment and decision-making more effec-

tive. Furthermore, we undertake a thorough

due diligence prior to conclusion of the lease,

which includes evaluation of physical condi-

tion, such as quality of soil and existing vege-

tation; as well as legal status of land, namely

ownership rights, registered land use limita-

tions and legal suitability for farming, which

also includes proximity to conservation areas.

Therefore, we do not operate in the areas

with high biodiversity value, specifically in:

(1) protected natural zones as defined by the

national legislation

; and (2) wildlife and natu-

ral habitats at the 377 Areas of Specified Con-

servation Interest (ASCI) that are part of the

Ukrainian zone of the Emerald Network, es-

tablished by the Bern Convention. We iden-

tified 20,000 hectares of our landbank that

border with areas of two national parks,

namely Podilski Tovtry and Dniester Canyon,

but Kernel’s activities are localized strictly

within economic zones (which is allowed by

the national legislation) not causing negative

impact on protected biodiversity.

In addition, our own farming operations and

our suppliers of grain and oilseed are not as-

sociated with deforestation. In Ukraine,

land bank of forestry and agriculture is gov-

erned by different laws in stating that conver-

sion of forests into agricultural land is prohib-

ited. Furthermore, Ukraine is historically

known for its large territories of agricultural

land (almost 70% of the country’s territories),

which have not been covered by forests over

the last 50 years. Issues of illegal deforesta-

tion in Ukraine are specific to the lands of the

forest fund and are not associated with agri-

cultural activities. In addition to such legisla-

tive limitations, Kernel took a non-defor-

estation commitment. We are also commit-

ted to prevent the expansion of arable lands

at the cost of natural habitats and other terri-

tories not intended for farming, both in our

own operations and in supply chains.

Our biodiversity management perfor-

mance

Our practical approaches towards minimizing

adverse impacts of our farming operations on

the biodiversity include the following:

• Promotion of soil biodiversity. Kernel

actively researches and tests applications

of biological fertilizers, including the phos-

phorus- and nitrogen-fixing bacteria. We

are the first agriculture company in

Ukraine to establish and run own microbi-

ological laboratory, where we closely

evaluate the benefits of biological fertiliz-

ers on soil health. We also use bi-

odestructors, namely bacteria and fungi,

that contribute to maintaining biodiversity

of soil while also intensifying the decom-

position or organic crop residues mulched

and lefts in fields, leading to subsequent

return of nutrients from residue back to

the soil. In addition, biodestructors have a

fungicidal effect, protecting crops from

harmful microorganisms. We have been

applying biodestructors on more than

350,000 hectares for several years.

In addition, under our ‘Climate corpo-

rate strategy and low-carbon pathway’

project we are closely researching agri-

culture technologies that have high poten-

tial for reducing GHG emission, associ-

ated with farming operations, and have

positive impact on biodiversity. Ap-

proaches such as reduced tillage, cover

and perennial crops not only allow to se-

questrate carbon, but also conserve eco-

systems of microorganisms in soil, crop

residue and plant biomass.

• Integrated pest management system.

When undertaking pest control actions to

reduce crop exposure to diseases, we

comply with applicable national and inter-

national regulations. We only use author-

ized plant protection products, listed in the

State registry of pesticides and

…………………………………………………………………..…..…..…..…..…..…..…………………….

Map of Kernel’s presence in areas with high biodiversity value in Ukraine

Bottled

sunflower

oil

Husk

(160

kg)

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agrochemicals allowed to be used in

Ukraine; we also do not apply chemicals

prohibited by the Stockholm Conven-

tion on Persistent Organic pollutants

and products, listed in Annex 3 of the

Rotterdam Convention

. We constantly

improve our pest management ap-

proaches by adjusting them in line with

legislative changes on pesticides in other

countries. For example, since 2021 we

have been gradually reducing the use of

neonicotinoid products. In a few years,

their application will be limited with Thia-

cloprid and Acetamiprid that are used in

certain EU countries and have lower tox-

icity for bees and wild insects. Before us-

ing new substance on the operational

scale, we test them on our R&D fields

(more than 25,000 hectares).

Application of pesticides is performed by

self-propeled spraying machinery,

equipped with positioning control system

that deactivates sprayers when leaving

the boundaries of an assigned field and

prevents doubling and re-application in

areas that were already sprayed. In addi-

tion, machines have automatic remote

control for weather conditions which ac-

counts for wind, allowing to minimize off-

the-field releases of pesticides.

• Control of seed quality. For sowing

campaigns Kernel only uses breeds and

hybrids of seeds, listed in the State Reg-

istry of Plant Species Eligible for Cultiva-

tion in Ukraine, which excludes genet-

ically modified seeds. All seeds, either

produced internally or sourced from the

market, undergo thorough examination in

Kernel’s accredited laboratory prior sow-

ing.

• Monitoring soil nutrients. At least once

per crop rotation cycle, we analyze the

quality of soils at our agrochemical labor-

atory by taking over 20,000 soil samples

(from 30 centimeters depths). Based on

results of evaluations, we adjust our crop

mix plans, production technology and fer-

tilization practices where required. Test-

based approach to application of fertiliz-

ers allows to maintain deficit-free balance

of nutrients and thus prevents deteriora-

tion of the soil quality.

Monitoring of environmental impacts

and ecological compliance

Our management approach towards regula-

tion of impacts of our operations on the envi-

ronment is built on two pillars, namely (1) con-

tinuous monitoring of key environmental per-

formance indicators to be aligned with per-

mits requirements and to successfully pass

environmental inspections, and (2) procedure

of environmental impact assessment (EIA)

and strategic environmental assessment

(SEA) in line with the national legislation for

planned activities that pose a high risk of sig-

nificant environmental impacts.

These priorities are reflected in our Code of

Conduct and in Environmental protection pol-

icy provisions which account for EBRD’s Per-

formance Requirements. We also expect the

same level of responsibility regarding control

of environmental impact from our suppliers as

stated in our Code of interaction with suppli-

ers. Mechanisms of environmental monitoring

are practically implemented through a group-

wide environmental management system

(EMS), which is certified with the ISO 140001

“Environmental management” standard

Responsibility for performing environmental

monitoring and ensuring compliance with

relevant legislation lies on the assets-based

team of environmental specialists (11 full-time

employees). Given the nature of our business

operations we are required to obtain permits

for air emissions, water withdrawal and dis-

charge of wastewaters to water bodies. The

process of obtaining permits is performed

both by Kernel’s team of environmental spe-

cialists and by involving external contractors.

In FY2022 Kernel’s assets obtained 16 air

emission permits, 5 water withdrawal permits

and 1 permit for subsoil use.

Complying with permits obligations we have

developed monitoring programs to control the

environmental quality of our operations.

These include analysis of air, soil and water

quality, as well as assessment of levels of

noise and vibration pollution. In addition, in

FY2022 we passed 5 inspections of environ-

mental compliance on our assets, performed

by the State environmental inspectorate of

Ukraine.

With regards to legally triggered environmen-

tal impact assessments, in FY2022 we suc-

cessfully completed the EIA procedure at our

oil extraction plant ‘Ukrainian Black Sea In-

dustry’ for the planned activity of groundwater

extraction. In FY2022, we spent a total of

US$195 thousand on measures, associated

with mitigation of environmental impacts and

environmental protection.

Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade

Certification ISO 14001 covers key trading company Kernel-Trade, six oil crushing plants, two farming clusters, fifteen silos and one trading terminal

Key environmental monitoring indicators in FY2022

Scope of monitoring

# of

checks

# of sites

monitored

# of samples taken

Air quality

139

1,167

Conditions of emissions permit

710

Conditions of EIA

190

Areas at boarders with SPA

267

Water quality

248

Ground water

181

Surface water

Soil quality

102

Areas of waste storage

Areas at boarders with SPA

Noise pollution

163

Vibration pollution

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CLIMATE ACTIONS (TCFD

DISCLOSURE)

Governance

Board oversight of climate-related risks

and opportunities

Kernel’s Sustainability Committee of the

Board of Directors was formally established in

October 2022. It is the body responsible for:

(1) identifying, prioritizing and advising the

Board on the company’s strategic activities in

the areas of decarbonization, climate-related

business opportunities, development of envi-

ronmental, social and human capital, and sus-

tainability governance (hereinafter – ‘ESG’)

and sustainable finance; (2) critically review-

ing and considering the ESG Strategy, which

will incorporate SBTi aligned climate targets

and decarbonization pathway; (3) ensuring

the implementation of the ESG Strategy

across business operations; (4) connecting

ESG and climate corporate agendas with Ker-

nel’s business strategy, business objectives

and capital allocation decision.

The Sustainability Board Committee is to con-

sist of at least three members, appointed by

the Board of Directors upon proposal of the

Nomination and Remuneration Committee;

Chair of the Committee appoints a secretary,

who is normally a sustainability manager. For

that reason, Sustainability Board Committee

acts as an effective link between the Board of

Directors and the Executive Management

Team.

The Audit Committee critically reviews and

prioritizes physical and transition climate

risks as part of its responsibilities to assist the

Board of Directors in delivering its risk man-

agement responsibilities by providing descrip-

tion of risks specific to Kernel, overseeing ad-

equacy and effectiveness of Kernel’s risk

management system, and reviewing the com-

pany’s policies on risk assessment and risk

management.

Management’s role in assessing and man-

aging climate-related risks and opportuni-

ties

Kernel seeks to integrate ESG and climate

corporate agendas in the company’s overall

business strategy and operations. For that

reason, the Executive Management Team is

actively engaged in implementation of ESG

and climate action practices and initiatives

within their respective functions, that are con-

sidered priority at a specific time. Kernel plans

and prioritizes such initiatives based on its vi-

sion of the role of the company and agriculture

sector in general in delivering the goals of the

Paris Agreement; and our place within the

international climate arena. We develop our

vision based on our understanding of global

dynamics in the areas of decarbonization and

The Cool Farm Tool is an online calculator that allows to account greenhouse gas emissions, associated with farming operations, and analyze various scenarios of

emissions reduction. The Tool is recognized by the GHG Protocol Agricultural Guidance and the Gold Standard, climate related certification system

Science Based Target initiative guidance for Forest, Land and Agriculture

carbon markets, which is complemented by

our ongoing dialogue with our key trade part-

ners, major global agriculture commodity trad-

ers.

Chief Executive Officer of Kernel plays a key

role in ensuring control over integration of

ESG and climate corporate agendas in busi-

ness operations. CEO is to provide a critical

review and feedback on the development of

Kernel's ESG and climate corporate strategy,

including GHG emission reduction targets,

approaches to the development of the sus-

tainability and climate corporate strategy

across operations, as well as on engagement

in relevant business opportunities related to

decarbonization.

Executive Management Team: In FY2022

we have launched a multi-stage process of

developing specific KPIs oriented at achieve-

ment of priorities of the ESG and climate

agendas. At the first stage, climate KPIs set a

qualitative target to establish a comprehen-

sive system of accounting GHG emissions

across the whole production chain. Under

Kernel's Performance Appraisal system, rele-

vant climate KPIs would cascade from an ex-

ecutive manager throughout a corporate func-

tion. For the first stage climate KPIs are to be

assigned to Chief Financial Officer, Heads of

Trading, Head of HR department and Head of

Communications.

Head of HR department ensures the overall

oversight of the development Kernel's sus-

tainability and climate governance. Among

specific responsibilities of the Head of HR De-

partment is the development of the system of

climate KPIs for the Executive Management

Team and their cascading throughout each

corporate function. Head of HR Department is

also responsible for communicating the im-

portance and benefits of sustainability prac-

tices and climate actions within the company

and supporting their implementation from the

behavioral perspective. Kernel’s sustainability

manager is in direct subordination to the Head

of HR department. The Sustainability man-

ager is responsible for leading the develop-

ment and improvement of Kernel's sustaina-

bility and climate corporate function.

Risk Committee of the Executive Manage-

ment Team is responsible for identification,

assessment, management, and control over

the key risks, including climate-related risks.

Strategy

In September 2021 Kernel launched a project

"Climate corporate governance and low-

carbon pathway", financed by the EBRD.

Kernel became the first agricultural company

in Ukraine and the region to embark upon

such ambitious project aimed to drive

decarbonization in agricultural sector.

The project consists of five tasks:

1. Assessment of climate related risks and op-

portunities (in line with TCFD recommenda-

tions)

2. Assessment of climate governance, man-

agement processes, reporting and capacity

3. Setting targets (in line with SBTi guidelines)

4. Assessment of climate change mitigation

and adaptation measures

5. Defining Corporate Climate Strategy

Using scenario analysis within this project the

company undertook the assessment of cli-

mate physical and transitional risks, and

their financial implications by embedding

these risks in the financial modelling. The

company developed the methodology for op-

erational accounting of GHG emissions asso-

ciated with farming practices; and evaluated

different scenarios of GHG emissions reduc-

tion and sequestration scenarios, using IPCC

methodology and Cool Farm Tool

with the

aim of practical realization for operational pur-

poses.

With regards to business opportunities, as-

sociated with climate-resilient practices,

Kernel envisions long-term collaboration with

key market players as a strategic contribution

in the advancement of climate actions agenda

in agricultural sector internationally. For that

reason, Kernel has launched a dialogue with

its key trade-partners to explore mutually ben-

eficial initiatives and opportunities.

In terms of climate governance development,

the company developed the first stage for the

system of climate KPIs for the Executive

Management Team, which focuses primarily

on qualitative indicator. Kernel also estab-

lished the Sustainability Board Committee, re-

sponsible for the oversight of the sustainability

and climate corporate function.

Building on this groundwork, Kernel seeks to

set emission reduction targets aligned with

the SBTi guidance and agree upon specific

measures to achieve such targets in mid- and

long-term perspective. These consultations at

the executive management level were set to

take place in March 2022. However, due to

the Russian invasion of Ukraine these deci-

sions were postponed until next year. Never-

theless, Kernel continues preparing the cli-

mate corporate strategy, which includes close

monitoring of relevant regulatory and guiding

developments. For example, during the public

consultation period Kernel submitted a sug-

gestion to the SBTi FLAG

guidance to in-

clude intensity-based reduction targets for

sunflower commodity pathway.

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Approach to climate risk identification and

management

Kernel's overall approach to managing risks,

including climate physical and transitional

risks, and to evaluating their impact on busi-

ness is governed by the company's Risk Man-

agement Policy and underlying procedures.

The policy reflects a comprehensive risk man-

agement framework, developed by Kernel,

which includes a 5-steps risk identification

and mitigation system, namely:

• Risk identification;

• Risk assessment and prioritization;

• Development and execution of risk mitiga-

tion plan;

• Monitoring of plan execution;

• Enhancement of risk management process.

The risk management framework operates

five risk categories: strategic (business), op-

erational, financial, regulatory and sustainabil-

ity. In terms of climate related risks, strategic

(business) and operational categories ac-

count for physical climate long-term and

short-term risks respectively. Transitional cli-

mate risks are covered by the regulatory cat-

egory and sustainability category covering a

broader group of environmental and social

risks. For the purpose of annual operational

planning, the company re-evaluates and up-

dates the matrix of top-10 risks, which are

then approved by the Board of Directors. The

risk of acute climate events in the production

cycle is embedded in the risk category 'weak

harvest in Ukraine', which is included in the

matrix of top-10 risk for FY2023. The risk of

weak harvest is applied to each business seg-

ment of the company: (1) Kernel's own farm-

ing operations (direct impact); (2) capacity uti-

lization of Kernel's silos and export terminals

due to physical shortage of grain on the mar-

ket and oil crushing margins due to limited

supply of oilseeds (indirect impact); (3) export

value chain, because the majority of Kernel's

grain export volumes normally originates from

third-party suppliers.

The risk management process is imple-

mented by the Board of Directors, executive

management and operational management

on an on-going basis. Risks of substantial fi-

nancial impact are considered by the Board of

Directors and other risks are maintained at the

executive management, and operational man-

agement levels. Indeed, the executive man-

agement team ensures that all risks are sys-

tematically identified, quantified, monitored,

mitigated and managed daily.

Within the 'Climate change strategy and low-

carbon pathway' project Kernel works to inte-

grate a more articulated approach to identifi-

cation, evaluation and management of climate

physical and transition risks in line with the

TCFD recommendations. This includes as-

sessment of impacts of climate-related

risks on the enterprise value.

With regards to climate physical risks, such

approach involves the regular assessment of

climate change information, provided by the

Regional Climate Models (specifically

CMIP6 Projections using SSP 2.6-4.5 and

SSP 8.5 scenarios to inform management de-

cisions) to understand the dynamic of climate

change impact across Kernel's landbank in

the long-term perspective. Relevant parame-

ters of these scenarios are used for stress-

testing of Kernel's financial model, allowing

to evaluate the Group's exposure to long-term

climate change impacts and their monetary in-

terpretation (i.e. impact on EBIDTA). Evalua-

tion of transitional climate risks is also to be

reflected in the company's financial model and

accounts for implications of both domestic

and European carbon regulations.

The interconnection between climate physical

and transitional risks is linked to the assump-

tion that SSP 2.6-4.5 scenarios would imply

that carbon regulations will be tightened sig-

nificantly and will strongly affect the Com-

pany’s performance, but the Company will be

less exposed to the physical risks; whereas

SSP 8.5 scenario implies that carbon regula-

tions will be tightened moderately and softly

affect the company’s performance, but in

turns the company will be more exposed to

the physical risks.

Kernel's approaches to identification, assess-

ment and management of climate risks are the

following:

• Climate physical risks are evaluated on

the operational level. Kernel's modelling

and monitoring team (consist of experts in

practical application of geographic infor-

mation systems, or GIS) as well as financial

and business analytics undertaking an on-

going monitoring of key climatic indicators

(data obtained from the company's own

meteorological stations and satellite data

which reflects the vegetational response to

weather conditions, such as NDVI indica-

tors) and their interconnections with finan-

cial and business performance. Further-

more, the farming segment holds strategic

sessions twice a year before spring and

winter sowing campaigns where Kernel’s

agricultural experts, building up on this

analysis, undertake a short-term business

planning, profound consultation and deci-

sion-making on management of climate

acute risks and adaptation practices.

• In terms of chronic climate risks, the mon-

itoring is based on the company's practical

observations and analysis of available

agrometeorological research on changes in

Ukraine's climate zones and yields dynam-

ics. To that end, Kernel's business analysts

undertake a regular analysis of harvest re-

sults of both Kernel and other agriculture

companies in Ukraine and compare these

indicators between geographic regions.

Such exercises help to identify climate pat-

ters and tendencies across the company's

landbank, which are used to make informed

long-term strategic decisions regarding the

geographic location of assets. Such deci-

sions are made at the level of the executive

management team, or at the level of the

Board of Directors if monetary implication of

a risk is higher than established substantial

strategic impact threshold.

• Identification of climate transitional risks

is undertaken by Kernel's sustainability

manager, through the on-going monitoring

of developments in domestic and EU car-

bon regulations. Transitional risks, flagged

by the sustainability manager, are evalu-

ated in terms of its monetary impact to-

gether with financial and business analyt-

ics. It is then brought up to the executive

management team, or to the Board of Di-

rectors attention if the impact of the risk is

considered significant. For example, this

process was followed when the tax on GHG

emissions in Ukraine was increased. This

matter was discussed with CFO, executive

management team and the next steps on

the risks monitoring were agreed upon.

Material climate-related risks

Chronic physical risks

For Kernel's operations chronic physical cli-

mate risks are relevant from the perspective

of long-term strategic impact on location of as-

sets. Analysis of the overall dynamic in cli-

mate system across the territory of Ukraine

demonstrates gradual shift in the boundaries

of natural zones (woodlands, forest-steppe,

steppe) towards the north-west over the next

10 years. Shift in climate zones leads to ex-

tension of land that falls under the category of

risky farming and, therefore, to increased

price of lease agreements for agricultural land

suitable for growing grain and oilseeds (the

so-cold ‘corn belt of Ukraine’).

Assessment and monitoring of dynamics in

climate conditions on Kernel's landbank is on-

going and involves: (1) analysis of meteoro-

logical data obtained from Kernel's own mete-

orological stations (a total of 51 stations) and

satellite climate change data, obtained from

GIS solutions frameworks such as GEOSIS,

undertaken by the modelling and monitoring

team, and (2) retrospective analysis of har-

vest from both Kernel's own landbank and in

Ukraine in general, made by the team of finan-

cial and business analysts.

For the purpose of ongoing monitoring of

changes in the vegetation and visualization of

climate-related data relevant to the regions of

company’s operations and potential expan-

sion, Kernel has a subscription to the provider

of GIS solutions (geographic information sys-

tem), GEOSIS Technologies. These solu-

tions allow to consolidate and analyse climate

related data and relevant patterns obtained

from satellite images.

Acute physical risks

The risk of acute climatic events resulting in

decreased yields is a basic risk for agricultural

business. Within Kernel's risk management

framework this risk is reflected in the risk

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category 'Weak harvest in Ukraine', which is

normally included in the top-10 company’s

risks list. Likewise, the company's financial

modelling provides for conservative basic as-

sumptions of reduced yields sue to impacts of

acute climate impacts. In addition, climate

acute physical risks are also applicable to Ker-

nel's infrastructure since extreme weather

conditions would impact farming business

across the whole country (impacting on Ker-

nel's supply chain and trading operations)

leading to decreased capacity operations of

the company's silos and oil crushing plants.

Within the 'Climate corporate governance and

low-carbon pathway' project the company un-

dertook an in-depth evaluation of acute phys-

ical risks based on Regional Climate Model

(RCM) of climate dynamicst on the territory of

Ukraine. RCM collects data on single levels

from a number of experiments, models, do-

mains, resolutions, ensemble members, time

frequencies and periods computed over sev-

eral regional domains all over the World - par-

ticularly in the CMIP 6 of the Coordinated Re-

gional Climate Downscaling Experiment

(CORDEX) framework. The analysis showed

that the frequency of acute climate events

(droughts) in northern parts of Kernel's land-

bank would increase under the SSP 8.5 sce-

nario in long term perspective.

The company’s response to this risk includes

organization of strategic session of the Farm-

ing segment twice a year, before spring and

winter sowing campaign. During this meeting

directors of Kernel’s farming clusters (cluster

is an organizational unit in Kernel’s landbank

and farming operations; there are a total of 5

clusters), agricultural experts, as well as busi-

ness and financial analytics undertake broad

consultations on results of previous harvest

seasons; identify areas for improvement in

agriculture practices; analyze available data

and projections of weather conditions during

the next harvest season; undertake short-

term business planning, profound consulta-

tion and decision-making on management of

climate acute risks and adaptation practices.

Transitional risk: emerging carbon regula-

tion in Ukraine

One of the Kernel's key transitional climate

risk is associated with developments in do-

mestic carbon regulations. This group of risks

includes two types of regulations: (1) Current

Ukraine's tax on GHG emissions (hereinafter

- carbon tax), and (2) Ukraine's national emis-

sion trading scheme that is currently under de-

velopment.

In case of Ukraine's carbon tax, it increased

from 10 UAH to 30 UAH (approximately 1

EUR) per tonne of CO2 over the 2021. The

company expects that the rate of carbon tax

will continue growing over the next years to

become aligned with average price of tonne of

CO2 in EU (these expectations are based on

Ukraine's commitment under EU Association

Agreement and its candidacy to EU, as well

as Ukraine's possible response to EU CBAM

requirements). Kernel evaluates risk of the ex-

pected growth of carbon tax in the following

years based on the average carbon tax value

in EU member countries (EUR 20-120/tCO2),

which would lead to significant annual ex-

penditures. Ukraine's carbon tax is applicable

to Kernel's combined heat and power plants,

that produce electricity from sunflower seed

husk (side product to the oilseed crushing pro-

cess, approved as a feedstock to provide ad-

vanced biofuels as per Annex IX.A. of RED II

Directive). The nature of this risks lies in the

fact that such regulation contradicts Ukraine's

regulation on Monitoring, Verification and Re-

porting (MRV) and EU's position on combus-

tion of biomass, production of advanced bio-

fuels GHG emissions from which are consid-

ered to be zero.

With regards to Ukraine's national emission

trading scheme, the key risk for Kernel's is the

significant increase in electricity price, when

ETS is finalized and launched. Assumption of

potential impact of such risk is based on aver-

age wholesale electricity prices in EU, which

accounted for up EUR 300/MWh in 2021. In

comparison, industry electricity price in

Ukraine in 2021 accounted for up to EUR

80/MWh. The company keeps a close moni-

toring of such risk, despite the fact that devel-

opment of Ukraine's ETS is at its initial stage

and is expected to be finalized not sooner

than in seven years.

It was evaluated that at current tax rate, an-

nual expenditures to cover carbon tax could

amount up to USD 1.4 million per year, as-

suming all seven plants work to their fullest

capacity (686 GWh per year) generating 538

949,88 tons of CO2. Potential financial impli-

cation is evaluated according to the NGFS

(Network for Greening the Financial Sys-

tem) climate modelling of carbon price dy-

namics in Ukraine: under the SSP 2.6-4.5 sce-

nario carbon price in Ukraine is projected to

increase up to EUR 65.4/tCO2, and under the

SSP 8.5 the price would reach EUR 1.1/tCO2

by 2030.

Kernel actively participates in business asso-

ciations, namely European Business Associa-

tion and American Chamber of Commerce in

Ukraine, where we actively contribute to the

development of common business positions

on different matters (i.e. energy transition,

food-energy balance, as well as bioenergy

and biofuels as integral pillars of the REPow-

erEU initiative) and their communication to the

government. Tax on GHG emissions, gener-

ated from biomass combustion is one of the

key issues where Kernel demonstrates a

strong position, as the largest producer of

electricity from biomass in Ukraine.

Transitional risk: emerging carbon regula-

tion in EU (increasing cost of fertilizers)

EU's ‘Fit for 55’ package (under which EU

seeks to cut its emissions by at least 55% be-

fore 2030) includes provisions on Emission

Trading Scheme, namely the target to reduce

the emissions by 61% before 2030 and to re-

duce the number of free allowances by 4.2%

each year. GHG emissions from production of

nitric acid, ammonia and hydrogen are cov-

ered by the EU ETS. Considering that nitric

acid, ammonia and hydrogen are intermedi-

ates in the production of NPK fertilizers, it is

expected that the price of EU sourced fertiliz-

ers will increase following the implementation

of Fit for 55 provisions. In FY2022, at least 8%

of the total volume of nitrogen fertilizers, pur-

chased by Kernel, were made in the EU

If produced in the EU, the price of fertilizers

would reflect price of EU allowances on GHG

emissions, which are projected to increase up

to EUR 306.1/tCO2 under the SSP 2.6-4.5

scenario and to EUR 157.7/tCO2 under the

SSP 8.5 scenario by 2030 (according to

NGFS climate data projections). In case of do-

mestically produced fertilizers, their price

would account for a projected carbon price in

Ukraine: EUR 65.4/tCO2 under SSP 2.6-4.5

scenario and EUR 1.1/tCO2 under SSP 8.5

scenario by 2030 (according to NGFS climate

data projections).

As for now, the company's does not take any

specific measures to respond to the risk of in-

creased cost of nitrogen fertilizers. However,

the company seeks to undertake a profound

screening of its current suppliers of nitrogen

fertilizers and identify areas for optimization of

the suppliers' portfolio and particular opportu-

nities for bilateral cooperation toward de-

creasing of purchased fertilizers carbon foot-

print.

Transitional risk: emerging carbon regula-

tion in EU (increasing cost of marine

freight)

EU's Fit for 55 package (under which EU

seeks to cut its emissions by at least 55% be-

fore 2030) provides for the extension of the

Emission Trading Scheme (ETS) and inclu-

sion of emissions from maritime transport,

which would cover all CO2 emissions from

large vessel regardless of the flag they fly. It

is, therefore, expected that cost of maritime

freight will increase significantly since it will

also include the cost of ETS emission allow-

ances.

Maritime freight logistics is essential to exer-

cise the company’s trading activities to its full

extend and around 24% of the total grain

sales are related to the supply in the ports of

E. The contracts are concluded on both CIF

and FOB delivery terms and, thus, the risk

might be partially passed on Kernel’s trading

partners. As a response to this risk Kernel

plans to become a signatory of the Sea Cargo

Charter in the future, an international frame-

work for assessing and disclosing the align-

ment with climate actions and GHG emission

reduction targets, including the ambition of the

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International Maritime Organization to reduce

shipping's total annual GHG emissions by at

least 50% by 2050. Under the technical guid-

ance of the Sea Cargo Charter, the company

would be able to improve accounting of emis-

sions from maritime freight and establish a rig-

orous process of their monitoring, which

would allow to identify areas for decarbonizing

Kernel's chartering activities in a more in-

formed way.

In FY2023, we plan to develop and adopt a

comprehensive Climate change risk manage-

ment policy, which is to provide a detailed out-

line of responsibilities on risk assessment and

management across all business division

Metrics and targets

Kernel’s Scope 1, Scope 2, Scope 3 green-

house gas (GHG) emissions and other air

emissions

Kernel accounts GHG emission, generated

from operational activities in Ukraine. Emis-

sions are calculated in accordance with the

IPCC Guidelines for National Greenhouse

Gas Inventories and Greenhouse Gas Pro-

tocol Guidance.

Scope 1 emissions includes direct GHG

emissions associated with the company's op-

erations of fossil fuel stationary and mobile

combustion, cattle farming, farmland culti-

vation (soil carbon stock change) and fer-

tilizers application. Company’s total bio-

genic GHG emissions generated from the

combustion of sunflower seed husk and

changes in organic carbon stocks are re-

ported as a separate figure. Emissions asso-

ciated with farming operations are reported in

the financial year, when the agricultural prod-

ucts were harvested, using data on mineral

and organic fertilizers applied during the

growth period in the previous financial year.

Within the 'Climate change strategy and

low-carbon pathway' project Kernel has un-

dertaken detailed calculations of GHG emis-

sions associated with farming operations us-

ing the Cool Farm Tool. We are in the process

of evaluating discrepancies between results

received as a result of our previous approach

and the Cool Farm Tool to identify the most

applicable and effective accounting approach

to be followed on the operational level.

In the reporting period we adjusted our ap-

proach towards GHG emission accounting:

we included emissions from changes in stock

of soil carbon in the total volume of Scope 1

emission, whilst emissions from combustion

of biomass remained accounted separately.

Scope 2 (location based) emissions refer to

GHG emissions generated from energy (elec-

tricity and heating) the company supplied. The

average specific emission factor for electricity

production in Ukraine is calculated as the ratio

of total emissions from electricity production in

Ukraine (source: National Inventory Report to

UNFCCC) to energy production itself (source

from Ministry of Energy and Coal Mining).

Scope 2 (market based) emissions refer to

GHG emissions from energy (electricity and

heating) purchased. Carbon intensity of heat-

ing both location and market-based approach

is the same due to vertically integrated market

and heating monopoly supply. Market-based

carbon intensity of electricity supplied is

higher than grid average (location-based) due

to decreased share of low carbon capacities

in the electricity trade portfolio allocated for

the relevant supplying contract (data from

Kernel’s electricity supplier) – significant

share of nuclear and hydro capacities in

Ukraine are contracted for households by us-

ing special purpose agreements.

Scope 3. To calculate Scope 3 emissions,

Kernel applies methodology, provided by the

GHG Protocol Corporate Value Chain (Scope

3) Accounting and Reporting Standard. We

evaluated all 15 categories of Scope 3 emis-

sions, namely:

• Purchased goods and services: this cate-

gory of emissions includes three material

types of purchased products: (1) purchased

grains, (2) purchased agriculture machin-

ery, and (3) purchased fertilizers. In case of

emissions associated with the purchased

grains, the accounting approach lies in ap-

plication of carbon intensity factors of Ker-

nel's own crops to the volumes of the pur-

chased grains. In case of the emissions as-

sociated with purchased agriculture ma-

chinery a spend-based method was used,

where emission factors were calculated

based on carbon intensity of net revenue of

machinery producers (material producers

included CNH Industrial, John Deere, MAN,

Palfinger). In case of the emissions associ-

ated with production of nitrogen fertilizers

purchased by Kernel, the content of nitro-

gen was calculated, and a sector average

emission factor was applied (kg CO2e/kg

N).

• Capital goods: in this category, Kernel ac-

counted the emissions associated with pro-

duction of metal and concrete, used for the

construction of assets. The company ap-

plied material use emission factors for

metal and concrete from the UK Depart-

ment of Environment, Food and Rural Af-

fairs (DEFRA).

• Fuel-and-energy-related activities (not in-

cluded in Scope 1 or 2): to calculate this

Material climate-related opportunities

Kernel is actively researching the following opportunities, which we assume would meet the grow-

ing demands on the market, primarily our key trade partners, associated with decarbonization

targets established by companies:

Product

group

Specification

Renewable

energy

The opportunity is stemming from the synchronization of Ukraine's en-

ergy system with ENTSO-E, which was finalized in March 2022. This

opens possibilities of commercial export of our 'green' electricity to

European countries, primarily neighboring countries such as Poland,

Slovakia, Hungary, Romania, and Moldova.

As a producer of electricity from feedstock, namely sunflower seed

husk (which is a side product to the oilseed crushing process and

therefore is approved as feedstock for advanced biofuels/renewable

energy as per Annex IX.A. of RED II Directive), Kernel would poten-

tially be able to produce and export up to 650GWh of electricity annu-

ally, when all seven combined heat and power plants are commis-

sioned.

The main driver behind this opportunity is growing regional demand in

corporate supply of renewable electricity (corporate renewable power

purchase agreements, or PPAs) and drastic increase in electricity

price in Europe.

Biofuels

Kernel explores opportunities associated with the production of biofu-

els. This opportunity stems from the growing demand for energy

sources both in Ukraine and in the EU (i.e. REPowerEU initiative

aimed at reduction of dependency on Russian natural gas), amid

changes in regional energy geopolitics following Russian invasion of

Ukraine.

This opportunity is also supported by developments in relevant do-

mestic legislations, for example plans on the establishment of national

registry of renewable gas guarantees of origin (RGGO) for bio-

methane producers.

Carbon

markets

Kernel explores opportunities associated with the generation of car-

bon offsets (carbon certificate) as the result of integrating low-carbon

agriculture practices (reduced tillage, application of nitrification inhibi-

tors, use of cover crops, sowing of perennial crops).

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category of emissions, Kernel used primary

data on energy consumption and applied

Well-to-tank indicators (Activity A) from

DEFRA; transmission and distribution

losses data for Ukraine (Activity C); as well

as average heat rate of local thermal power

plants (Activity B) to calculate emissions

across three types of activities: Activity A

(43,690.9 tons CO2e), Activity B ( 12,725.0

tons CO2e), Activity C (10,270.5 tons

CO2e).

• Upstream transportation and distribution:

this category includes the emissions from

transportation of purchased goods and in-

ternal logistics (i.e. transportation of grains

from fields to silos and from silos to termi-

nals). The company applied the Freighting

goods emission factors for vans and HGV

from DEFRA. In case of the spend-based

method of emission accounting, the emis-

sion factors were calculated based on car-

bon intensity of the net revenue of providers

of logistics services.

• Waste generation in services: for this cate-

gory, Kernel used primary data on waste

generation and approaches to waste utiliza-

tion, including treatment of wastewater dis-

charged to WWTPs. The company applied

the Waste disposal emission factors from

DEFRA.

• Business travel: This category of emissions

is not material in comparison to the total vol-

ume of Scope 3 GHG emissions. In the re-

ported period the emissions associated

with employee’s business travels ac-

counted to only 59,95 tones CO2e. It was

calculated using data on the distance trav-

elled, derived from the database of pur-

chased tickets, and Business travel emis-

sion factors from DEFRA were applied.

• Employee commuting: for this category,

Kernel used data on employees' selected

choice of commute to work and distance of

their commute to work and back home, cal-

culated based on the database of employ-

ees addresses. Respective emission fac-

tors from DEFRA were applied.

• Upstream leased assets: Kernel does not

have leased assets within its operations.

The company, however, lease vehicles for

the purposes of internal logistics, but emis-

sion associated with them are immaterial

and accounted for 91,85 tons CO2e. Emis-

sions were calculated using distance-based

method and respective emission factors

from DEFRA. This category of emission is

considered immaterial in comparison to the

total volume of Scope 3 emissions.

• Downstream transportation and distribu-

tion: this category includes the emissions

associated with marine freight of sold prod-

ucts (grain and oil) – from the combustion

of fuel by ships, mostly Panamax class. Re-

spective emission factors from DEFRA for

burning of marine fuel oil were applied con-

sidering the shipping costs and average

fuel spent share.

• Processing of sold products: this category

includes emissions associated with refining

of sunflower oil. Unrefined sunflower oil

purchased from Kernel typically undergoes

refining process at the facilities of a buyer.

To calculate such emissions the company

used average electricity efficiency factor for

its own refining process and applied grid

emission factors for each country where

sunflower oil was exported (The IFI Dataset

of Default Grid Factors).

• Use of sold products: Kernel sells final

products, including grains, sunflower oil

and animal meal. In case the sold products

are used in energy sector, sunflower oil re-

lated biodiesel component of fuel is consid-

ered as zero-carbon.

• End of life treatment of sold products: this

category includes the emissions associated

with treatment of the sold waste. Kernel

used primary data on the sold waste and

approaches to its utilization. The relevant

Waste disposal emission factors from

DEFRA were applied. However, this cate-

gory of emissions is not material in compar-

ison to the total volume of Scope 3 emis-

sions.

• Downstream leased assets: This category

of the emissions is not relevant to Kernel's

business, as the company does not provide

leased assets.

• Franchises: this category of emissions is

not relevant to Kernel's business as the

company acts neither as an investor nor

does it have shares in emission-related

portfolios.

• Investments: This category of emissions is

not relevant to Kernel's business as the

company acts neither as an investor nor

does it have shares in emission-related

portfolios.

To reduce N2O emission, Kernel applies dif-

ferentiated mineral fertilization that pre-

vents excessive volumes of nitrogen ending

up in the atmosphere. Based on the crop mon-

itoring data, this technique allows to reduce

the portion of fertilizer by 10-15%. The proper

application timing is equally important. For

corn, winter wheat, rapeseed, and sunflower

annual portion of nitrogen is applied in 2-3

phases.

Key GHG emission indicators

thousand tCO2e

FY2020

FY2021

FY2022

Scope 1

1,224.0

1,025.9

1,193.6

by GHG

CO2

445.4

291.7

413.3

CH4

22.3

22.0

22.8

N2O

756.3

712.2

757.4

by business segment

Oilseed processing

9.5

19.0

9.1

Infrastructure and trading

40.6

58.4

81.3

Farming

1,169.2

941.1

1,102.1

Fuel use

130.8

135.5

103.2

Fertilizers application

741.6

697.3

746.2

Changes in stock of soil carbon

271.9

83.9

227.2

Cattle methane from enteric fermentation

24.8

24.4

25.5

Other

4.8

7.4

1.2

Biogenic (combustion of sunflower husk)

356.4

349.5

348.9

Scope 2 (Location based)

96.1

95.5

78.5

Scope 2 (Market based)

102.0

101.3

83.3

Scope 3

1,005.8

773.8

Cat.1. Purchased goods and services

466.1

414.2

Cat.2. Capital goods

45.6

22.5

Cat.3. Fuel- and energy-related activities

(not incl. in S.1-2)

66.7

52.4

Cat.4. Upstream transportation and distri-

bution

17.0

16.4

Cat.5. Waste generated in operations

5.07

4.99

Cat.6. Business travel

0.059

0.001

Cat.7. Employee commuting

6.4

Cat.8. Upstream leased assets

0.1

Cat.9. Downstream transportation and dis-

tribution

350.8

253.5

Cat.10. Processing of sold products

47.4

3.1

Cat.11. Use of sold products

Cat.12. End-of-life treatment of sold prod-

ucts

0.5

0.1

Cat.13. Downstream leased assets

Cat.14. Franchises

Cat.15. Investments

*- Discrepancies between data in this and previous reports (FY2021 and FY2020) are associated with clar-

ifications of raw data and alignment of relevant conversion factors.

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We apply a stabilized liquid nitrogen ferti-

lizer (urea-ammonia mixture) in spring to en-

sure minimum time between its application

and consumption by crops. In autumn we use

only the ammonia-based fertilizer, after av-

erage daily soil temperature falls below 10°C.

Additionally, we apply nitrification inhibi-

tors, and cultivate cover crops. To limit CO2

emissions, we reduce both specific fuel con-

sumption and mileage of the field machinery

through regular modernization of the fleet

and optimized routing, respectively.

Emission of the other significant emission,

such as air pollutants, are associated with

combustion of sunflower husk at oil extraction

plants and are calculated by the sites' environ-

mental specialists for statutory reporting pur-

poses on a quarterly basis. Calculations are

based on the volumes of combusted husk and

established specific emission factors.

The emissions of hexane are associated with

a solvent used for oil extraction, are strictly

controlled, and prevented throughout trans-

portation, storage and application for both re-

source efficiency and safety reasons. All the

equipment contacting hexane at Kernel’s

plants follows EU ATEX Directive

(2014/34/EU ‘Equipment for potentially explo-

sive atmosphere’). The solvent is reused

through multiple extraction cycles.

The emissions of ozone-depleting sub-

stances, namely refrigerants, are associated

with work of industrial cooling equipment op-

erated at two oil extraction plants and in ani-

mal husbandry division.

To prevent dust emissions associated with

grain and oilseeds handling, we apply sophis-

ticated design solutions and techniques that

minimize contacts of material flows with the

atmosphere. This includes closed type grain

and oilseed unloading stations, conveyer

lines, and ship loading machines with ad-

vanced dust control features. Where preven-

tion is not feasible, treatment equipment is ap-

plied.

Our crushing plants operate six electrostatic

precipitators (ESP) for removing PM from

boilers’ flue gases. These highly efficient (95-

98%) filtration devices use electric energy to

generate electrostatic charge that captures

fine particles. All grain handling installations at

silos and transshipment terminals are

equipped with cyclone filters.

In FY2022 Kernel paid a total of US$ 272

thousand of environmental tax, of which US$

217 thousand for CO2 emissions and USD 55

thousand for air polluting emissions from sta-

tionary sources.

Emission reduction targets

Kernel seeks to establish targets of GHG

emissions per tonne of commodity in line with

SBTi FLAG guidelines. The company cur-

rently works to deeply analyse different sce-

narios of GHG emission reduction for our key

crops (based on calculations of baseline

emissions in the Cool Farm Tool), which is

possible with incorporation and various com-

binations of low carbon farming practices

such as reduced tillage, application of nitrifi-

cation inhibitors and introduction of cover

crops to crop rotations. According to prior es-

timates such practices can potentially have

the following emission reduction capacity: (1)

nitrification inhibitors up to 10% reduction, (2)

cover crops up to 31% reduction and (3) re-

duced tillage up to 85% reduction. Building up

on these assumptions and considering the

company's initial business strategy to in-

crease own land bank by 1.4 times (to 706

000 ha) by 2026, the company may potentially

achieve a total of 15% reduction in GHG emis-

sions associated with farming operations over

the next five years.

In terms of oilseed processing operations, the

company may potentially achieve carbon neu-

trality over the following years, given that the

90% of energy consumed by the company's

plants is already low carbon and the rest is re-

lated to Scope 2 electricity consumption

(might be compensated by allocating of the

self-generated renewable electricity for own

operation or supplying external low carbon

electricity by using available market instru-

ments such as Corporate PPA).

One of the tasks of the ‘Climate corporate

governance and low-carbon pathway’ project

is to identify the role of agriculture, and specif-

ically Kernel, in the achievement of the Paris

Agreement targets; and therefore, to under-

stand what emission reduction targets the

company should pursue and what business

opportunities can be implemented to em-

power the company's low-carbon pathway de-

velopment. As part of this the company's rep-

resentatives attended the 26-th Conference

of Parties to the UN Convention on Climate

Change, where the dialogue with major agri-

culture commodity companies was initiated

following their common statement to

strengthen their climate actions and decar-

bonize their supply chain. The idea behind

such long-term dialogue between the compa-

nies' sustainability and trade functions is to

explore areas for partnership, specifically to

identify mutual initiatives where Kernel may

contribute to the implementation of climate

targets of its trade-partners. These initiatives

will be directly reflected in Kernel's own emis-

sion reduction targets.

Key GHG emissions intensity indicators (Scope 1&2)

FY2020

FY2021

FY2022

GHG emissions per volume of harvested crop,

kg CO2e/ t of yields

Corn

133.6

144.3

126.6

Sunflower

337.5

393.7

419.9

Wheat

256.7

277.2

264.7

Rapeseed

417.8

532.0

413.3

Soybean

323.7

574.1

450.5

GHG emissions per area of sowed crop,

kg CO2e/ ha

Corn

1,145.6

1,147.2

1,173.6

Sunflower

1,175.1

1,189.5

1,281.8

Wheat

1,504.5

1,351.8

1,626.4

Rapeseed

1,457.9

1,603.2

1,642.3

Soybean

829.4

706.5

911.4

GHG emissions per sunflower seeds

processed

kg CO2e/ t of seeds

24.5

29.2

32.1

*- Calculation approach was adjusted, namely emissions from combustion of sunflower husk were

eхcluded

Other significant air emissions

FY2020

FY2021

FY2022

Air pollutants, thousand tones

1.7

2.1

2.4

Carbon oxide

0.4

0.9

0.6

Sulfur dioxide

0.1

Nitrogen oxides

0.1

0.4

Solid substances

1.1

1.3

Ozone-depleting substances, tCO2e

1,603.2

1,377.9

1,364.2

R-407C

221.8

105.0

95.8

R-134A

1,195.5

72.9

R-507A

185.9

77.4

1,195.5

Hexane, tones

1,313.3

1,259.0

942,5

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As per the methodological approach for set-

ting emission reduction targets, Kernel will

rely on the SBTi Forest, Land and Agriculture

(FLAG) guidance, which is currently under fi-

nalization. In line with this guidance Kernel will

seek to set two categories of emission reduc-

tion targets: an absolute target and specific

targets for each key crop. The company

closely monitors developments in this area:

when SBTi opened public consultations for its

FLAG guidance, Kernel submitted its

suggestion to include corn in the list of specific

targets.

With regards to the timeframe, Kernel origi-

nally planned to finalize the work under the

EBRD-financed 'Climate corporate govern-

ance and low-carbon pathway' project and

make a decision on emission reduction tar-

gets by June 2022. However, due to the un-

certainty resulting from Russia's invasion of

Ukraine and on-going military actions, the

company had to postpone any decision-

making on emission reduction targets until

next two years. Nevertheless, the company

continues work on researching business op-

portunities related to decarbonization of its

operations and remains committed to its cli-

mate ambitions.

HUMAN CAPITAL

General employment information

Our management approach to employ-

ment and human resources

Kernel’s approach towards managing human

resources is defined by the Code of Conduct

and is built on four principles, namely (1) in-

volvement as an internal entrepreneurship,

(2) partnership and unity of goas, (3) mutual

respect and trust, and (4) development of hu-

man potential. Our practices are strictly

aligned with the Labor Code of Ukraine and

other relevant national legislature, as well as

the International Labor Organization’s

(ILO) Fundamental Conventions.

We expect the same level of responsibility re-

garding relations with employees throughout

our supply chain: our counterparties are obli-

gated to comply with our Code of interaction

with suppliers, requiring them to ensure fair

and safe working conditions for their employ-

ees and to be compliant with labor legislation.

These requirements are reflected in the rele-

vant provision of a contract signed by counter-

parties.

We are committed to providing our employees

with safe working conditions, strictly adhering

to the regulations of occupational health and

safety and the other relevant requirements;

respective working hours; competitive trans-

parent remuneration and benefits (including

all salary-related taxes and social contribu-

tions); support with a childbirth and proper pa-

rental leave. There is an absolute zero toler-

ance to any form of forced or compulsory

labor or child labor at Kernel Group.

Renumeration approach and benefits

In FY2022 Kernel’s total payroll accounted for

a total of US$245 million; 973 employees

were receiving minimum wage (881 FTE ba-

sis).

Overall, our remuneration is built on three pil-

lars, namely:

1. Base compensation and benefits. The

basic level of Kernel’s remuneration sys-

tem including:

• salaries and wage-based bonuses, that

match or exceed the benchmark of other in-

dustries. It also includes additional pay-

ments and compensations, depending on

working conditions, as well as fixed

payments in case of retirement and finan-

cial support in case of an employee’s diffi-

cult personal circumstances. When person-

nel optimization takes place resulting in re-

duction of

• number of employees, the wage fund is not

reduced correspondingly, but is distributed

………………………………………………………………………………………………………………………

Key human resources indicators

as of June 30, 2022)

FY2020

FY2021

FY2022

Total number of employees

11,928

11,256

10,223

including by geography:

Ukraine

11,882

11,208

10,180

Other countries

including by level:

Managers

908

936

870

Specialists

3,452

3,354

3,020

Workers

7,568

6,966

6,333

including by business segment:

Oilseed Processing

2,203

2,253

2,291

Infrastructure and Trading

2,718

2,592

2,679

Farming

6,232

5,609

4,366

Head office and other

775

802

887

including by age

less than 30 years old

6,719

1,686

1,464

up to 50 years old

3,178

6,431

6,271

more than 50 years old

2,030

3,139

2,488

including by employment contract, by region:

Permanent

11,440

10,614

9,647

Ukraine

11,394

10,566

9,604

Other countries

Seasonal and temporary

488

642

576

Ukraine

488

642

576

Other countries

including by employment contract, by gender:

Permanent

11,440

10,614

9,647

Male

8,440

7,750

6,845

Female

3,000

2,864

2,768

Seasonal and Temporary

488

642

576

Male

409

581

510

Female

including by employment type, by gender:

Full-time

11,641

11,162

7,262

Male

8,538

8,279

5,430

Female

3,103

2,883

1,832

Part-time

287

Male

196

Female

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Sustainability: Human capital

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among the rest of the team.

• healthcare services, including a voluntary

medical insurance for the full-time employ-

ees, life insurance for employees, who

cover insurance costs, and OHS insurance.

• rewards for improvements in production,

both monetary (such as one-time monetary

incentives for operational accomplish-

ments) and non-financial recognitions.

• other benefits include sponsorship of edu-

cational opportunities and sport activities,

provision of food at workplaces, free trans-

portation to work etc.

2. Reward for leadership. Each year employ-

ees undergo assessment of their competen-

cies, both self-assessment and evaluation

by a linear manager. Based on the result of

such assessment employees’ base salaries

might be reviewed (more information on an-

nual performance appraisal and career ad-

vancement in the section Training and ca-

reer advancement)

3. Incentive system. This system aims to en-

sure that career goals of our employees,

business targets of business divisions and

long-term strategic goals of the company

are synchronized. Kernel annually estab-

lishes financial and operational quantitative

and qualitative goals, which are cascaded

down to specific KPIs of employees in rele-

vant business segments. Employees can

also establish their own KPIs. Annual per-

formance assessment quantifies the

achievement of KPIs and automatically im-

pacts the size of the annual performance

bonus. The system is fully transparent and

prevents any prejudice. We provide employ-

ees with all tools to directly affect KPIs and

monitor the KPIs’ execution on close-to-

online basis.

Support of employees during wartime

Safety and wellbeing of our employees have

been the upmost priority amid military actions

in Ukraine, resulted from Russia’s invasion.

Kernel has been providing extensive support

to its employees, especially those who are de-

fending the country or are internally displaced

people. Despite a high level of turmoil during

the first months of war, Kernel has been se-

curing remuneration to its employees in com-

pliance with the legislation.

Special focus was made on employees, who

were mobilized to the Armed Forces of

Ukraine or joined the Territorial Defense units:

they were provided with high-quality protec-

tive military equipment and additional financial

support.

Furthermore, employees who suffered disabil-

ity as the result of military actions received

UAH 150 thousand of additional financial aid

(~US$ 6 thousand); and families of employ-

ees, who were killed in action, received UAH

500 thousand of financial support (~US$ 19

thousand).

Kernel assisted a total of 312 employees with

evacuation from regions in close proximity to

active military actions and provided them with

temporary housing. In addition, employees

whose child was born during the martial law

received UAH 10 thousand (~US$ 371) of

one-off cash payment.

Key employment dynamic indicators in FY2022

Total number of new hires

3,286

by geography

Ukraine

3,280

Other countries

by gender

Male

2,610

Female

676

by age

less than 30 years old

722

up to 50 years old

721

more than 50 years old

1,843

Total number of employee turnover

1,756

by gender

Male

1,374

Female

382

by age

less than 30 years old

393

up to 50 years old

365

more than 50 years old

998

Total number of employees that left Kernel due to retirement

103

…………………………………………………………………………………………………

Parental leave indicators in FY2022

195 61

171

Employees that were entitled to parental

leave

Employees that took parental leave

Employees that returned to work in the

reporting period after parental leave ended

Employees due to return to work after taking

parental leave

Employees that were still employed 12

months after their return to work

Male Female

~1,300 employees were mobilized to

defend Ukraine

~US$ 2.3 million of monetary sup-

port provided to employees who de-

fend Ukraine

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

Sustainability: Human capital

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Sustainability

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Governance

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Statements

Training and career advancement

Our management approach to training and

performance review

We manage professional development of our

employees based on the Competency model.

It is a system of eight key competencies es-

tablished in line with Kernel’s business strat-

egy, priorities, and targets, aiming to maxim-

ize the Group’s long-term value. Competen-

cies, in line with which Kernel currently oper-

ates, were determined during the company-

wide research on different behavioral features

that managers most value and promote in em-

ployees across different business segments

and operational levels.

Kernel’s key professional competencies are

the following:

1. Strategic thinking

2. Performance management

3. Organization of a unit’s work

4. Responsibility

5. Readiness to change

6. Cooperation

7. Systematic thinking

8. Continuous improvement

The employees, covered by the competency

model undertake annual assessment after

which they create an individual development

plan. Individual development plan consists of

three parts: (1) hard learning, which provides

for attraction of internal or external experts

and for allocation of individual learning budg-

ets; (2) soft learning, which is realized through

Kernel’s institute of internal couches; and (3)

distance learning, which employees can plan

access through an online educational plat-

form, Kernel Hub, which provides more than

1,000 e-books, 155 e-courses and 200 train-

ing videos.

The combination of these three categories of

learning activities is known as the corporate

minimum package, which includes one pro-

fessional course and minimum three courses

on the general development. In terms of em-

ployee categories, the competency model co-

vers managers and specialists. Workers re-

ceive professional education, which is built on

Kernel’s inhouse expertise. Professional train-

ings for workers match their individual devel-

opment plans and job descriptions, that con-

tain standard skill requirements for each posi-

tion.

In FY2022, a total of 3,491 employees evalu-

ated their competencies and created individ-

ual development plans. Throughout the year

Kernel’s a total of 6,690 employees benefited

from Kernel’s educational programs, spend-

ing 152,804 hours of training (or average of

22.8 hours per employee), 73% of which were

dedicated to improvement of hard skills and

27% - soft skills. In terms of distance learning,

5,751 employees took at least one course on

Kernel’s Hub in FY2022.

In the reported period, the team of the initia-

tive ‘Institute of internal trainers’ was made of

40 employees, who undertook a special train-

ing to become coaches on soft skills. Kernel’s

overall expenditures on training and educa-

tion of its employees in FY2022 accounted for

USD 341.2 thousand.

In addition to competency assessment, em-

ployees undertake annual performance, or

KPIs, assessment through a dedicated digital

system. Based on the results of such evalua-

tion managers provide feedback and consul-

tations on the career development, and re-

view KPIs for a next financial year. Both com-

petency and performance assessment mech-

anism are key pillars in Kernel’s annual per-

formance appraisal system.

Assistance with career growth and up-

grading skills of our employees

Kernel has developed two programs to sup-

port employees’ professional growth and ca-

reer advancement, namely Kernel Growth

and Kernel Leadership, which are core pillars

of the ‘Talent Pool’ project. The idea behind

this project is to create two levels for person-

nel reserve for promotion to top-management

positions: (1) under Kernel Leadership heads

of departments, who aspire to become top-

managers, receive specialized training, men-

torship from acting top-managers and assis-

tance from coaches of personal development;

whereas (2) Kernel Growth covers middle-

level managers and specialists, who are moti-

vated to actively build their career at Kernel.

To become a participant for either program,

employees go through several stages of se-

lection, that include analytical tests and busi-

ness cases. Kernel implements this project in

partnership with the Kyiv-Mohyla Business

School and upon the completion of these pro-

grams our employees receive diplomas of

mini-MBA.

In addition, in FY2022 we have launched an

initiative ‘Re:Industry of Knowledge’, aimed

to upgrade professional skills of our produc-

tion workers. The training program is semes-

ter-based: during the first semester almost

2,000 employees took specialized courses on

oilseed crushing technologies, occupational

health and safety and compliance through the

online platform Kernel Hub. For the second

semester we resumed ‘Re:Industry of

Key training and education indicators

FY2020

FY2021

FY2022

Average hours of training per employee

9.4

21.6

22.8

by gender:

Average hours of training per male

10.1

21.2

25.1

Average hours of training per female

7.4

22.7

18.4

by employee category:

Average hours of training per manager

26.5

76.6

35.8

Average hours of training per specialist

15.7

35.7

32.7

Average hours of training per worker

4.5

7.4

7.9

Total number of training hours

112,186

242,833

152,804

including by skill sets

Hard skills

95,753

195,868

111,309

Soft skills

24,833

46,965

41,495

including by learning formats

Full-time training

24,833

41,266

21,964

Distance Learning

87,353

201,567

130,840

including by frequency

Annual / regular training

46,337

123,420

67,507

One-time training

7,870

109,533

79,417

Modular development programs

57,979

9,880

5,880

Kernel annual performance appraisal system

…………….………………………………………………..…..…..…..…..…..…..…………

Kernel’s annual performance appraisal system

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Knowledge’ and adapted our education ap-

proached to the conditions of wartime in

Ukraine. Therefore, participants of the pro-

gram received micro-learning on professional

topics through short educational videos, pre-

pared by Kernel’s internal experts.

As of the end of FY2022, participants of this

program mastered four out of eight planned

professional subjects. There is also a sepa-

rate subject on technological process of com-

bined heat and power plants, aimed to

deepen employees’ understanding of their

role in the work of oil crushing plants. Further-

more, we have a specialized skill upgrading

program for personnel of our combined heat

and power plants, that we implement in part-

nership with Lviv Polytechnic National

Institute. This training program consists of six

modules and allows for our employees to

have professional consultations with experts

of the Institute.

Training to adapt to external challenges

We envision training and professional devel-

opment as one of the integral components of

our human capital, which in turn empower out

ability to create long-term value and to

strengthen our adaptability to external risks

and challenges. Amid wartime in Ukraine,

Kernel takes active steps to adapt to new con-

ditions; namely, we plan to launch the training

on interchangeability of skills, critical for our

business operations. The idea behind such

approach is for workers to gain additional pro-

fessional skills and, thus, to ensure that our

production assets have an internal pool of ex-

pertise which can be exploited to fill gaps if

some employees are mobilized into the army.

In addition, since the beginning of Russian in-

vasion of Ukraine, Kernel has launched train-

ing on tactical medicine, accessible for all em-

ployees. The participant of this training learn

how to provide first aid in accordance with the

Tactical Combat Casualty Care protocol

MARCH (acronym stands for the proper order

of treatment, namely massive hemorrhage,

airway, respirations, circulation, head in-

jury/hypothermia). Our employees have

demonstrated significant success in master-

ing the training, being able to apply a tourni-

quet in 45 seconds.

Employees’ career development indicators

FY2020

FY2021

FY2022

Total number of employees, receiving regular performance and career de-

velopment reviews

1,736

1,779

1,777

including by gender

Male

1,347

1,385

1,393

Female

389

394

384

including by employee category

Managers

650

657

664

Specialists

1,086

1,122

1,113

Occupational health and safety

Our management approach to occupa-

tional health and safety

The central driver of our approach to manage

occupational health and safety (OHS) is the

aspiration to have no work-related injuries and

fatalities at all Kernel’s working sites. Al our

employees are provided with appropriate and

safe working conditions in line with Ukraine’s

national labor legislation and provisions of the

International Labor Organization’s Funda-

mental Conventions. Our approach is en-

shrined in the Workplace health and safety

policy, which provides for the establishment

and continuous improvement of occupational

health and safety management system (here-

inafter – OHSMS). We expect the same level

of responsibility and dedication to ensure oc-

cupation health and safety from our suppliers:

our agreements include provision on compli-

ance with Kernel’s Code of interaction with

suppliers, under which our suppliers are obli-

gated to provide their employees with safe

working environment and have proper OHS

practices implemented. OHSMS covers all

employees and contractors, including con-

tractors working on our sites but who we have

limited functional control over.

Before entering our working sites, any visitor or worker is briefed with description of the OHS risk identification and management system; they are also required to

take an OHS e-course.

Acronym stands for Eliminate, Reduce, Isolate, Control, Personal Protective Equipment, Discipline.

To minimize risks of work-related injuries

among our contractors we instruct them on

our OHS practices and requirements

. There

is also a dedicated OHS specialist, responsi-

ble for managing an independent system of

monitoring implementation of OHS practices

and inspecting compliance with safety re-

quirements violations in our investment pro-

jects. Therefore, our contractors are evalu-

ated and ranked based on their OHS perfor-

mance. If violations of OHS requirements re-

occur, the contractors are penalized. In

FY2022, there were no instances of work-re-

lated injuries and fatalities among contractors.

Kernel’s OHSMS operates in line with require-

ments of national regulations and ISO 45001

standard and is led by an OHS corporate

manager who annually reports to a manage-

ment committee, headed by the company’s

CEO. Within the OHSMS the process of iden-

tifying and assessing work-related hazards

and safety risks is exercised on a non-routine

and annual bases. A non-routine procedure of

risk identification takes place for new busi-

ness operations and assets, and results in a

list of hazards and risks. The risk identification

on an annual basis is reflected in responsibil-

ities of managers, OHS professionals and

other employees to update list of hazards,

basing their inputs on results of internal and

external labor safety audits, the outcomes of

employees’ engagement process and feed-

back, lessons learned from incidents investi-

gations, as well as results of OHS assess-

ments and incorporation of world best prac-

tices. OHS assessments include self-assess-

ments and statutory inspections, information

on which is consolidated in a special data-

base. Once potential risks and hazards are

identified, the OHSMS triggers the procedure

of risks management which is organized in

line with the ERIC/PD

hierarchy of hazard

controls and consists of the following steps,

taken in the descending priority:

• Fully eliminate a risk or a hazard

• Reduce potential impact of a risk or a haz-

ard

• Isolate a risk or a hazard from employees

• Control a risk or a hazard, by providing em-

ployees with personal protective equip-

ment, training, detailed instructions and in-

formation, means of first response, as well

as lockout/tagout devices.

If work-related incidents occur, we launch an

investigation of each case, using the Ishi-

kawa, or ‘fishbone diagram’ approach that

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Human capital

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aims: (1) to identify root causes of an incident,

(2) to map risks and hazards that materialized,

(3) to determine corrective actions in line with

the ERIC/PD hierarchy of hazards control,

and (4) to integrate lessons learned into re-

quired improvements of the OHSMS. This in-

formation is diligently recorded in the accident

statistics, which also includes the data on the

frequency of occupational accidents, subse-

quent lost workdays, and the severity of inju-

ries.

For every work-related accident we create a

special investigation commission, that might

also include representatives of relevant au-

thorities. As the result of an investigation the

commission issues a report detailing the cir-

cumstances of the incident and recommenda-

tions to improve the risks management ap-

proaches and to prevent occurrence of such

incidents in the future. Such approach aims to

ensure continuous improvement of the OHS

practices to achieve central target of zero

work-related injuries and fatalities.

As of the end of FY2022, a total of 25 assets

were certified with ISO 45001 standard and by

FY2023 we seek to compete certification for

the remaining assets. In FY2022, all covered

employees were audited internally, whereas

7,358 of them also underwent external audit.

Overall, 61 externally certified inspectors

spent 85 man-days on the internal labor

safety audits. In addition, in the reported pe-

riod we successfully completed 2 OHS statu-

tory inspections of our assets, demonstrating

absence of any incompliances with national

labor safety requirements; and 28 independ-

ent audits, completed by a third party.

In FY2022, Kernel’s total expenditures on oc-

cupational health and safety amounted to

US$ 1,344 thousand. This amount includes

spendings on special working clothes and

personal protection equipment, education and

trainings, risks management and prevention.

Employees engagement and training on

the occupational health and safety

Our approach of employees’ engagement in

OHS practices improvement is driven by be-

havioral incentives and material nudges, mo-

tivating staff to minimize and prevent hazard-

ous situations. Such incentives include moni-

tors, installed at our production sites, which

show current and record number of days with-

out work-related accidents, or monetary re-

ward for best ideas on labor safety improve-

ment and risk identification factors.

We employ proactive methods to engage our

employees in the development, implementa-

tion and evaluation of the effectiveness of the

These include key trading company Kernel-Trade, six oil extraction plants, two farming clusters, fifteen silos and one grain transshipment terminal.

‘Gold Safety Rules’ initiative recognizes best set of labor safety requirements, composed by employees themselves; ‘Walk the Talk’ projects was launched to allow

OHS specialists and manager explore gaps in OHSMS by interviewing employees and discussing their ideas on improvements.

OHSMS, as well as to communicate OHS in-

formation, namely via corporate surveys,

‘Gold Safety Rules’ initiative and ‘Walk the

Talk’ project

At Kernel any employee can flag and report

occupational health and safety risks they ob-

serve and report about hazardous situations

on a worksite by reaching out to their supervi-

sor, field OHS specialist or the company’s cor-

porate manager. They can also raise any

OHS issues by submitting a ‘Near Miss’ and

‘Stop card’ letterforms or contacting the cor-

porate Hotmail (in FY2022 a total of 10,519

‘Near Miss’ letter forms were submitted,

…………….………………………………………………..…..…..…..…..…..…..…………………………

Number of participants in occupational health and safety trainings

2,908

2,989

1,874

1,985

3,173

1,455

3,680

5,949

2,455

2020 2021 2022

OH&S trainings (offline) OH&S trainings (online) Emergency response drills

Key occupational health and safety indicators

FY2020

FY2021

FY2022

Recordable work-related injuries

including by business segment

Oilseed processing

Infrastructure and trading

Farming

High-consequence work-related injuries

(ex. Fatalities)

including by business segment

Oilseed processing

Infrastructure and trading

Farming

Fatalities resulted from work-related inju-

ries

including by business segment

Oilseed processing

Infrastructure and trading

Farming

Rate of recordable work-related injuries

(LTIFR)

0.68

0.46

0.22

Rate of fatalities as a result of work-related

injury

0.04

0.00

0.06

Rate of high-consequence work-related in-

juries (excluding fatalities)

0.20

0.09

0.17

Workers covered by OHS management

system

11,209

10,180

Workers covered by OHS management

system, who were audited internally

11,209

10,180

Workers covered by OHS management

system, who were verified internally and

externally

10,667

7,358

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Human capital

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resulting in elimination of 99% of potential in-

cident). Workplace health and safety policy

ensures protection of whistleblowers from any

form of retaliation.

Kernel’s OHS training program gives our em-

ployees an opportunity to deepen their under-

standing of key principles in labor safety and

OHSMS; as well as to gain specific skills, al-

lowing them to prevent, minimize and appro-

priately respond to hazardous situations on

worksites. All employees are obligated to take

OHS e-learning courses (a general course for

all employees and specialized courses tai-

lored to different business operations and pro-

fessions) followed by a test. Employees in-

volved in high-risk works take a mandatory

specialized training, followed by exams and

authorization to begin work. In addition, Ker-

nel provides employees with trainings on ap-

propriate response actions in dangerous situ-

ations, such as fire, that involve state rescue

services and specialized equipment.

Over FY2022, a total of 1,455 employees took

mandatory e-learning OHS courses and 1,874

employees took specialized offline OHS train-

ings, spending 8,600 hours. Our employees

(2,455) also participated in 234 emergency re-

sponse drills.

Human rights, diversity, and inclusion

Kernel has an unconditional respect for hu-

man rights, which is an obligatory principle

employed at every corporate level and extrap-

olated to our suppliers and business partners.

Our position on internationally proclaimed hu-

man rights is enriched in our Sustainability de-

velopment and corporate social responsibility

policy and aligned with the principles of the

UN Global Compact, which Kernel signed in

2020.

As a signatory we are committed to safe-

guarding human rights and equal opportuni-

ties for women, persons with disability, local

opportunities, smallholder farmers and work-

ers, including those under temporary con-

tracts, sub-contractors and migrant workers;

we are also committed to not undertake any

activities that have negative impact on human

rights of children and indigenous people. In-

deed, there is no forced or child labor involved

in any of Kernel’s operations; the company

was not complicit and did not commit viola-

tions of any other human rights in the reported

period. We follow the action plan to promote

human rights principles and annually report

our performance as part of the Communica-

tion on Progress on the UN Global Compact.

Our suppliers and business partners are also

obligated to respect human rights as part of

Luxembourg Law of 23 July 2016 on disclosure of non-financial and diversity information, implementing the European Directive 2014/95/EU.

Submissions to the grievance mechanism can be made via (1) a toll-free round-the-clock hotline, (2) form on Kernel’s website, (3) via email by writing to hot-

line@kernel.lu or compliance@kernel.lu, (4) Telegram chatbot ‘KernelHotline’.

their mandatory compliance with Kernel’s

Code of interaction with suppliers, which is

one of the provisions in our agreements with

counterparties. The Code requires our coun-

terparties to ensure equal opportunities for

their employees, diversity, and a ban of forced

and child labor in their operations.

At Kernel we believe in the respect for diver-

sity among our employees as one of the fun-

damental human rights and freedoms; and its

empowerment is integral for ensuing our suc-

cess, market competitiveness and long-term

value for our stakeholders. Our approach to

safeguarding equal opportunities and non-dis-

criminatory working environment is guided by

Luxembourg Law of 23 July 2016

and our

Anti-Discrimination and Diversity, Equality

and Inclusion (hereinafter – DE&I policy) poli-

cies.

In FY2022 we updated our DE&I policy to

align it with the relevant provisions of the code

of corporate governance for issuers of shares

listed on the Warsaw Stock Exchange, “The

Best Practices for GPW Listed Companies

2021”. Under the new edition of the DE&I pol-

icy, Kernel aspires to reach at least 30% of

representation of each gender within the com-

pany’s corporate bodies, namely the Board of

Directors and the Executive Management

Team. We have designated individuals and

teams responsible for implementing the DE&I

Policy at every corporate level, ensuring the

adoption of diversity, equality and inclusion

principles in all business activities of Kernel.

At the Board of Directors’ level, matters re-

lated to the integration of diversity principles

are overseen by the Nomination and Remu-

neration Committee, whereas the Chief Exec-

utive Officer is responsible for the implemen-

tation of the DE&I Policy throughout the com-

pany.

Under the Anti-discrimination policy, we are

committed to ensuring the equal employment

opportunities and non-discriminatory working

environment for all the categories of individu-

als. In FY2022 the share of socially vulnerable

employees was 13% out of the total number

of employees, and 8% of all employees were

individuals with disabilities.

Kernel has a grievance mechanism, through

which the company’s employees and counter-

parties have an opportunity to submit com-

plaints related to human rights violations or

discriminatory actions, as well as to receive

redress if investigation determined that such

violations took place

In FY2022, Kernel organized an online lecture

for all employees on equal opportunities, in

…………………………………………………………………………………………………………………………….

Key diversity and equality indicators

(as of 30 June 2022)

FY2020

FY2021

FY2022

Percentage distribution of individuals within the

Board of Directors

by gender

Male

63%

50%

Female

38%

50%

by age

30-50 years old

75%

more than 50 years old

25%

Percentage distribution of individuals within the

Executive Management Team

by gender

Male

75%

67%

Female

25%

33%

by age

30-50 years old

87%

more than 50 years old

13%

Percentage distribution of individuals among em-

ployees

by gender

Male

74%

72%

Female

26%

28%

by age

less than 30 years old

56%

15%

14%

up to 50 years old

27%

57%

61%

more than 50 years old

17%

28%

24%

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Human capital

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Sustainability

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Governance

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collaboration with the UN Population Fund,

where we addressed issues such as gender-

based stereotypes, vertical and horizontal

gender segregation and a concept of “glass

ceiling”.

Freedom of association and collective

bargaining

At Kernel we believe that every employee has

a right to be a part of associations and collec-

tive bargaining agreements. Our position is

enriched in the Freedom of associations and

unions policy, and aligned with the principle of

the UN Global Compact to uphold the free-

dom of associations and effective recogni-

tion of the right to collective bargaining. As

of the end of FY2022, 90% of our employees

were covered by collective bargaining; and

9% of all employees were members of trade

unions.

SOCIAL CAPITAL

Anti-corruption and compliance

Our management approach to anti-corrup-

tion

At Kernel we have zero tolerance to any fraud-

ulent and corrupt activities, both among our

own employees and counterparties. Our posi-

tion on anti-corruption and approach towards

ensuring ethical compliance are embodied in

Kernel’s Corporate Governance Charter,

Code of Conduct, Anti-corruption policy

and

Code of Interaction with Suppliers. In addition,

all our agreements and tendering processes

include the Anti-corruption clause. In FY2022,

we updated the Anti-corruption clause to re-

flect changes in national legislation amid Rus-

sian military invasion of Ukraine

. In line with

such changes, we also increased a number of

controls and strengthened the process of

screening our counterparties. Kernel’s stand-

ard response to counterparties’ incompliance

with the provisions of the Anti-corruption

clause or Code of Interaction with Suppliers is

to cease any cooperation with them.

The requirements to adhere to our anti-cor-

ruption rules also covers our partners in the

Open Agribusiness project (small farmers

cannot participate in our programs if their land

lease agreements are not properly registered,

their crop sales and business processes are

not formalized, as well as if they are found to

be involved in shadow operations or avoid

paying taxes); and students of Kernel’s Open

Agro University, who might be employed at

the company after graduation. Responsibility

to enforce provisions of these documents cen-

trally lies on Kernel’s compliance officer, who

reports directly to the CEO and the Audit

Anti-corruption policy is aligned with requirements of national legislation, the US Foreign policy Corrupt Practices Act (FCPA), the UK Bribery Act (UKBA), the

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and reflects provisions of anti-corruption legislation of the countries

with Kernel’s presence

Resolution of the Cabinet of Ministers of Ukraine No. 187 dated 03.03.2022 "On Protection of National Interests in Future Claims of the State of Ukraine in Connection

with Military Aggression of the Russian Federation"; and the Law of Ukraine No. 2116-IX dated 03.03.2022 “On Basic Principles of Forcible Seizure of Objects of

Property Rights of the Russian Federation and its Residents in Ukraine”

Committee at the Board of Directors; whereas

the corporate culture of integrity and compli-

ance is driven by the Tone at the Top princi-

ple. There are also regionals compliance co-

ordinators, whose role is to implement anti-

corruption and compliance standards, as well

as ensure on-going improvement of ethically

correct corporate culture on Kernel’s opera-

tional assets. Compliance officer is also re-

sponsible for provision a confidential advice

on compliance practices to Kernel’s employ-

ees at their request.

In FY2022 a frequency of such request in-

creased significantly (125 requests) mainly

due to uncertainty amid wartime in Ukraine.

Kernel is also a member of several profes-

sional associations and international initia-

tives, under which the company made public

commitments to promote transparency and

zero tolerance to fraudulent activities. Indeed,

Kernel is a member of the Ukrainian Network

of Integrity and Compliance (UNIC), and a

signatory to the UN Global Compact and the

UN Anti-corruption Collective Action Mem-

orandum. Additionally, for Kernel these plat-

forms are effective ways to exchange best

corruption prevention practices between busi-

ness, and to drive the corporate culture of in-

tegrity in the agriculture sector.

Identification and prevention of corruption

risks

All our operations are regularly screened

against risks of corruption. The company

identified a total of 19 risks, the most signifi-

cant risks include: (1) obtaining undue bene-

fits, that might lead to financial losses and rep-

utational damages; (2) conflict of interest; (3)

work for other companies and entrepreneurial

activities. Our managers and specialists are

obligated to undertake annual procedure of

declaration of any conflict of interests,

whereas workers are informed on situations

where conflict of interests might occur. The

company also applies screening of corruption

risks when hiring new employees, with partic-

ular focus made on candidates who previ-

ously worked in governmental institutions.

In terms of identification of corruption inci-

dents among counterparties, Kernel’s security

department conducts an in-depth docu-

mented KYC (Know Your Customer) proce-

dure before any interaction. A compliance of-

ficer is involved in this process to undertake

additional verification if a counterparty poses

medium or high risks of corruption, or conflict

of interests or might be a subject to interna-

tional sanctions (152 cases in FY2022). Addi-

tional verification of contracts by a compliance

manager also takes place when a counter-

party suggests changes to our Anti-corruption

clause (163 cases in FY2022). In FY2022 we

improved the system of screening our coun-

terparties for the risks of corruption and in-

compliance: if the system identifies any red

flags, it generates automatic notifications and

suspends the process until the compliance of-

ficer and legal department evaluate risks.

Furthermore, any corruption risks and poten-

tial incidents of misconduct are also identified

through dedicated channels of informing, in-

cluding anonymous ones which are open for

Kernel’s employees, suppliers and third

Key social impact indicators in FY2022

Total amount of charity spendings, USD thousand

825

including by purpose

medical support

infrastructure

162

general charity

259

other social expenses

402

Implemented social projects

hospitals who received equipment

supported schools

246

organizations that received financial donation

cultural buildings renovated or maintained

communities that received aid

465

Key anti-corruption and compliance indicators

FY2022

Number of confirmed incidents of corruption

Number of employees dismissed for corruption

Number of public legal cases on corruption brought against Kernel

Number of confirmed incidents of contracts with business partners be-

ing terminated due to corruption

Total number of submissions to Kernel’s channels of informing on mis-

conduct

Total number of managers and specialists who completed the proce-

dure on declaration of conflicts of interest

2 920

Total number of employees who took anti-corruption trainings

3 778

by employee category

Managers

638

Specialists under high compliance risks

210

Workers

2 930

Total number of Open Agro University students who took anti-corrup-

tion trainings

102

Total number of employees who took offline compliance training

142

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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parties

. All submissions are examined and

addressed by the compliance officer. Kernel

has established a mechanism to protect whis-

tleblowers from retaliation.

Mandatory education, awareness-raising and

continuous enhancement of ethically correct

corporate culture are main pillars of our ap-

proach to prevent unethical behavior among

our employees. According to the company-

wide survey, conducted in FY2022, 99.9% of

our employees are familiar with Kernel’s inter-

nal policies on corruption prevention and anti-

corruption provisions of the Code of Conduct.

Our Executive Management team is regularly

informed about changes in anti-corruption leg-

islation, introduction of new sanctions and key

compliance measures integrated in the com-

pany’s operational activities.

Our anticorruption practices and approaches

to enhancement of the culture or transparency

and integrity are demonstrating positive re-

sults. Over the last four years occurrence of

corruption has been following a strong declin-

ing trend. In FY2022, a total of 38 cases of

corruption were confirmed, which is 14%

lower than that of last year. Incidents of theft

by employees have also decreased by 14% in

FY2022 and accounted for 63 cases (79 em-

ployees were involved).

Our actions on gender-based violence

In FY2022 Kernel continued taking proactive

steps towards raising awareness on preven-

tion of gender-based and domestic violence

as a signatory of the Declaration on gender

equality and preventing domestic violence (in-

itiated by the UN Population Fund). We orga-

nized an informative campaign on provisions

of the Council of Europe Convention on

preventing and combating violence (also

known as Istanbul Convention) ratified by

Ukraine in June 2022. In addition, we partici-

pated in an annual international campaign “16

Days of Activism against Gender-based Vio-

lence” when the company organized a series

of measures aimed at recognition and preven-

tion of gender-based and domestic violence,

as well as first aid techniques if such cases

occur. Another achievement in this area was

the development of a new training course on

countering sexual harassment in the work-

place in line with recommendations of the

IFC’s Performance Standards.

Economic performance and impact

Economic performance is the most important

KPI for the management performance-based

part of compensation. As a diversified agro-

industrial business in Ukraine with leading po-

sitions across all business segments, we gen-

erate a significant direct economic impact on

Submissions can be made via (1) a toll-free round-the-clock hotline, (2) form on Kernel’s website, (3) via email by writing to hotline@kernel.lu or compliance@ker-

nel.lu, (4) Telegram chatbot ‘KernelHotline’.

our stakeholders in areas of all our operations.

The direct economic impact includes our pur-

chasing of goods from suppliers, dividends

paid to shareholders, wages and benefits paid

to our employees, financial expenses paid to

creditors, income taxes paid to the public sec-

tor, and community investments, as well as

economic value retained for the investments

to increase the capitalization of the company.

EU Taxonomy

Starting from FY2022 Kernel will be reporting

its contribution to the European Union’s envi-

ronmental objectives of climate change miti-

gation and climate change adaptation in line

with the guidelines laid down in the EU Tax-

onomy regulations. In response to these re-

quirements, we have undertaken a compre-

hensive analysis of our economic activities,

revenue they generate as well as our capital

(CapEx) and operational (OpEx) expendi-

tures; and identified the share of activities that

meet the EU Taxonomy criteria or, in other

words, are considered ‘environmentally sus-

tainable’.

The identified taxonomy-eligible economic ac-

tivity falls under the category ‘Electricity gen-

eration from bioenergy’ (NACE code

D35.11 in accordance with the statistical clas-

sification of economic activities, established

by Regulation EC No 1893/2006) and refers

to production of electricity from biomass,

namely sunflower seed husk, at our combined

heat and power plants (CHP). This ‘green

CapEx’ investment project was launched in

2018, aiming to construct seven CHPs with a

total installed capacity of 94MW. When com-

missioned, all CHPs are expected to produce

and sell to the national grid up to 650 GWh of

electricity annually, making Kernel the largest

producer of biomass-originated electric en-

ergy in Ukraine.

A particular value from our ‘green’ electricity

is that we do not produce biomass separately

to be combusted on CHPs; but rather use sun-

flower seed husk, which is a side product of

the main operational activity and is approved

as a feedstock to provide advanced biofuels

in accordance with Annex IX.A. of RED II EU

Directive. When sold to the national energy

Taxonomy-eligible share of Kernel’s economic activities

FY2021

FY2022

US$ thousand

Amount

Revenue, including

5,595.0

100.00%

5,332.0

100.00%

taxonomy-eligible

6.5

0.12%

13.4

0.25%

taxonomy non-eligible

5,588.5

99.88%

5,318.6

99.75%

Capital expenditure, including

174.6

100.00%

110.0

100.00%

taxonomy-eligible

38.9

22.25%

21.5

19.58%

taxonomy non-eligible

135.7

77.75%

88.4

80.42%

Operational expenditure, including

5,149.0

100.00%

5,317.0

100.00%

taxonomy-eligible

2.2

0.04%

9.5

0.18%

taxonomy non-eligible

5,146.8

99.96%

5,307.5

99.82%

Key economic performance indicators

US$ million

FY2020

FY2021

FY2022

Direct economic value generated

4,093

5,839

5,408

Revenue

4,107

5,595

5,332

Net IAS 41 effect

(21)

133

Other operating income

111

Economic value distributed

Operating costs, of which

(3,756)

(5,149)

(5,317)

employee wages and benefits

(164)

(351)

(245)

Finance costs

(147)

(142)

(119)

Community investments

(8)

(4)

(26)

Other costs

(38)

(6)

Total charges

(3,948)

(5,301)

(5,451)

Income tax

(22)

(32)

Dividends paid

(21)

(35)

(34)

Total economic value distributed

(3,991)

(5,368)

(5,483)

Economic value retained

102

470

(75)

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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grid, electricity produced at our CHPs substi-

tutes electricity produced from fossil fuels.

When fully implemented, our taxonomy-eligi-

ble activity will be able to save up to 700,000

tCO2e of national emissions every year, con-

tributing significantly to Ukraine’s transition to

a net-zero emissions economy. As of FY2022

Kernel has been operating three CHPs with

the remaining four to be commissioned in the

following periods.

Support of local communities and so-

ciety as a whole

Our management approach towards social

impact

At Kernel we are driven to maximize our pos-

itive social impact within the area of our bigg

est expertise by sharing our knowledge and

experience with farmers and educating the fu-

ture generations of specialists in agriculture

and food sectors; as well as by being a re-

sponsible neighbor and reputable partner to

local communities and generally supporting

the Ukrainian society. These priorities are re-

flected in our Sustainable development and

corporate social responsibility policy.

Additionally, in FY2022 we updated our

Stakeholder engagement policy to make it

aligned with the IFC’s performance standard,

which includes an extensive plan of our inter-

actions with key stakeholders like local com-

munities. The responsibility for identification

and practical interaction with stakeholders lies

on a team of assets-based public relations

managers, who act as Kernel’s representa-

tives in regions, communicating with landown-

ers, local officials, and media. They also reach

out to communities in rural regions, helping

them with employment on Kernel’s assets, as

well as coordinating our regional social pro-

jects and initiatives. Communication with rep-

resentatives of local communities and other

stakeholders is also performed via dedicated

channels of informing, grievance mechanism,

through which they can submit their inquiries

and receive extensive feedback (in FY2022

we received a total of 1,214 calls via a toll-free

hotline).

Support of the Armed Forces of Ukraine

and the society at wartime

People have always been the main value for

Kernel and our mission to ensure their safety

and wellbeing have been of highest priority

amid wartime in Ukraine. From the beginning

of Russia’s full-scale invasion of Ukraine, Ker-

nel has been taking a leadership position

among Ukrainian business in providing help

and support to the Ukrainian society and the

army during the wartime. Our support has

been both financial, such as purchases of mil-

itary equipment, medicine and cars, and non-

monetary, namely humanitarian aid directed

to the army an internally displaced people,

such as food supplies and provision of tempo-

rary shelter for internally displaced people.

Social projects and charity spendings

We direct our charity and social investments

towards the following categories of projects:

• Infrastructure investments: maintenance

and repairs of roads, bridges, street light-

ing, waterpipes, bus stops and other.

• Education: maintenance and repairs of

schools, kindergartens, and playgrounds;

providing necessary equipment to educa-

tional institutions.

• General charity: targeted support of land-

owners in need, orphanages and nursing

homes, severely ill people, and cash dona-

tions to other charity organization.

• Sport and culture: building and repairs of

libraries, athletic fields, community cultural

centers, sacral building; supplying equip-

ment for gyms, sponsorship of sport and

cultural events.

• Healthcare: maintenance and renovation

of rural health posts, purchases of medical

equipment.

Educating the next generation of agricul-

ture specialists

In FY2022 Kernel established an educational

project, Open Agro University (hereinafter –

‘the University’), aimed to prepare the future

employees of the company and Ukraine’s ag-

riculture sector in general. The project was de-

veloped with the involvement of EBRD and

experts of Deloitte Ukraine’s Human Capital

Advisory Services team and Deloitte

Ukraine’s Academy. The program targets uni-

versity students of final years, who are moti-

vated to undertake specific courses, devel-

oped by Kernel, which provide theoretical

knowledge and unique practical expertise on

agriculture technologies, food processing and

corporate management. The project partici-

pants who have successfully undertaken all

trainings and demonstrated dedications be-

come employed at Kernel upon completion.

The University offers education by seven spe-

cialties, namely:

• Agronomist

• Power engineer

• Mechanical engineer in farming

• Mechanical engineer in production

• Engineers of process automated control

systems

• Technology engineer in oil production

• Technology engineer in laboratories and si-

los

The team of experts and lecturers includes

more than 100 Kernel’s in-house experts, pro-

fessors of Ukraine’s leading universities, ex-

ternal partners (global producers of agricul-

ture machinery, fertilizers and crop protection

agents) and international experts. For the first

stage of the project implementation, we re-

ceived applications from 900 candidates, of

which 122 students were accepted. The pro-

cess of selection is inclusive and diversity-

based, providing equal opportunities for can-

didates of different gender, from different re-

gions, cities, and universities.

Amid outbreak of military action, the project

was paused for several months, reopening

again in May 2022. By that time, the remaining

number of the University’s student exceeded

our expectations and amounted for a total of

88 participants. We adapted our teaching ap-

proaches to the needs of the time by switching

most learning sessions to online formats,

maximized the involvement of in-house ex-

perts as lecturers, transferred all practical

courses to the safest regions in Ukraine and

included the possibility for student to receive

psychological support. Nevertheless, the pilot

season of the project was considered suc-

cessful – upon the completion of the studies,

13 participants became full-time employees at

Kernel. The company plans to continue imple-

menting the Open Agro University project next

year.

Sharing our expertise with farmers

In 2018 Kernel launched Open Agribusiness

project, designed to help framers in Ukraine

sustainably increase their yields, as well as

improve technological and business manage-

ment approaches to reduce cost, maximize in-

come and build resilience to risks and volatili-

ties. We share our expertise and provide prac-

tical assistance to Open Agribusiness part-

ners. In return, they supply minimum 80% of

their yields to Kernel. As of the end of the re-

ported period, the Open Agribusiness has

more than 50 partners, which cover a total of

168 thousand hectares of landbank.

Kernel’s contribution towards the support

of Ukraine during wartime

Social spending in FY2022

US$ thousand

26,348

Support of the defenders of Ukraine

12,752

Humanitarian aid

9,072

Social projects

1,880

Other aid

2,644

Non-material support of the Army,

pcs

Body armor

5,446

Military uniform sets

7,933

Military helmets

2,005

Thermal imagers

1,171

Quadrocopters

Means of communication sets

565

Other equipment

1,133

Humanitarian aid

Milling wheat, tones

5,562

Sunflower oil, liters

1,021,310

Canned food, liters

57,626

Other food, pcs

1,805,730

Medical aid

Medicine and medical equipment,

pcs

485,445

Organized supply of medical supplies

from partners in Canada, pcs

374 108

Other aid

Cars, trucks

520

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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nel.ua

Sustainability: Social capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Since the beginning of Russia’s full-scale in-

vasion of Ukraine, Kernel continued support-

ing partners of the Open Agribusiness project

by providing extensive agronomic consulting

on farming practices, development of techno-

logical maps and improvements of productiv-

ity.

Interactions with suppliers

Quality interactions with suppliers are one of

the key aspects of Kernel’s ESG and climate

governance agenda. The main purpose is to

identify opportunities for cooperation, explore

ways to improve our climate-related perfor-

mance (reduction of Scope 3 GHG emissions)

and to extrapolate of our practices across our

supply chain, including suppliers of grain and

oilseed, as well as our partners within the

Open Agribusiness program.

Building on our progress under the “Climate

corporate governance and low-carbon

pathway” project, in FY2022 we launched a

series of dialogues with our trading partners

(major agriculture commodity traders in the

world), specifically with their sustainability and

trading functions. The idea behind such com-

munication is to establish the process of on-

going exchanges of knowledge and experi-

ence on low-carbon development and imple-

mentation of mutual initiatives, that would

contribute to climate actions. The long-term

goal of this process is to identify Kernel’s spe-

cific role in the international climate change

agenda and in the delivery of the Paris Agree-

ment goals, from the perspective of agricul-

ture sector, supporting of low ILUC (Indirect

Land Use Change) practices and SBTi sec-

toral pathways (Science-Based Targets initia-

tive). An interim result of our dialogue with

global agriculture majors is a consensus on a

market-wide necessity to establish a standard

approach to accounting carbon footprint of the

key agriculture commodities and to ensure its

traceability throughout the value chain. Addi-

tionally, we initiated a dialogue with global

producers of agriculture machinery, such as

John Deere and CNH Industrial, to explore

available on the market low-carbon options,

including machines working on biomethane

and biodiesel.

Also, we have been working to expand the

scope of our expertise and advisory that we

provide to participants of our Open Agribusi-

ness program, by including knowledge on the

low-carbon agriculture practices (also known

as carbon farming). The overarching goal is to

extrapolate our own practices on carbon farm-

ing across our partners, local farmers, and

align them with the SBTi emission reduction

pathways. This initiative also seeks to train

farmers on possibilities of voluntary carbon

offsets markets and, therefore, might poten-

tially create new channels of revenues for

them.

Finally, in the next reported period we plan to

launch a profound screening of our suppliers

of nitrogen fertilizers, particularly those pro-

duced in the EU. The purpose of this exercise

is to identify ways to optimize portfolio of sup-

pliers with regards towards the reduction of

carbon footprint of purchased fertilizers. This

would be an initial step in addressing potential

climate transitional risk, associated with the

target of the EU’s ‘Fit for 55’ package to re-

duce emissions by 61% before 2030. Given

that production of intermediates for nitrogen

fertilizers, namely nitric acid, ammonia and

hydrogen, are covered by the scope of the EU

Emission Trading Scheme, it is expected that

cost of EU originated fertilizers would in-

crease significantly in the following years.

In FY2022 Kernel continued implementation

of the supply chain sustainability manage-

ment program initiated last year. The program

aims to improve traceability of sustainability

matters in the supply chain by evaluating sup-

pliers’ social and environmental performance,

as well as potential risks in these areas. The

process consists of four stages:

Key supplier E&S assessment indicators

FY2021

FY2022

Total number of suppliers

14,679

15,094

by type of interaction

screened for anti-corruption provisions

14,679

15,094

assessed for E&S issues via questionnaires

assessed for E&S issues via audits

identified as non-compliant with E&S provisions

Total number of onsite contractors evaluated

578

258

by type of interaction

assessed for OHS risks before entering a site

578

258

assessed for OHS risks during onsite works

439

260

identified as non-compliant with OHS provisions

172

100

assessed for environmental risks during onsite works

assessed for environmental risks entering a site

identified as non-compliant with environmental provisions

Total number of suppliers of grain and oilseeds

3,989

4,151

screened for anti-corruption provisions

3,989

4,151

assessed for E&S issues via questionnaires

assessed for E&S issues via audits

identified as non-compliant with E&S provisions

...................................................................................................................................................

Volumes of purchased grains and oilseeds by types of suppliers

83%

17%

Existing New

9,299

thousand tons

62%

24%

14%

Farmers 1st intermediary 2nd imtermediary

9,299

thousand tons

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: Social capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

• Setting E&S standards. Our expectations

on suppliers’ environmental and social per-

formance are enriched in relevant provi-

sions of the Code of interaction with suppli-

ers and Anti-corruption clause, which re-

flect Kernel’s commitments to principles of

the UN Global Compact and Sustainable

Development Goals. They include require-

ments on ethics, fair business practices,

human rights, occupational health and

safety, and environmental protection.

• Ensuring obligatory E&S compliance.

Before entering business relationships, all

counterparties are obligated to sign Ker-

nel’s Anti-corruption clause of a contract.

Kernel is entitled to verify compliance with

relevant provisions and terminate contracts

if non-compliance is identified.

• Compliance verification. The procedure

of conforming suppliers’ compliance with

Kernel’s E&S requirements is of two level.

First, all potential counterparties undergo

initial screening by the corporate Economic

Security Service. Environmental and social

criteria are included in the scope of initial

screening, focusing on analysis of location

and nature of suppliers’ operations, certifi-

cation by relevant E&S standards, such as

ISCC, ISO14001 and ISO18001, as well as

the outcomes of environmental inspections

etc. The second level of verification is audit

that involves of visits to suppliers

• Production facilities, interviews with man-

agement and personnel, and review of rel-

evant documentation. In the process of ver-

ification, we provide feedback to suppliers

regarding possible ways to improve their

E&S performance, if required.

• Application of business consequences.

Based on the results of audits Kernel either

continues cooperation with counterparties

or suggests corrective measures if non-

compliance with our E&S requirements is

identified and monitors their implementa-

tion. Another possible consequence of sup-

pliers’ non-observance is termination of

business relationship.

Onsite contractors also undergo compliance

checks for anti-corruption risks, OHS and en-

vironmental performance at the stage of ten-

dering. According to the template provisions

in Kernel’s counterparty contracts, onsite con-

tractors are obligated to complete OHS drills

before entering the company’s facilities; to

prepare the OHS management plans, which

need to be approved by Kernel; report on

waste management procedures etc.

Our overall approach to managing OHS of on-

site contractors is implemented in line with the

ISO 45001:2018 standard.

Product quality and customer safety

Our management approach to product

quality and customer safety

Our management approach towards ensuring

highest quality of our goods is embodied in

Kernel’s Product Quality and Safety Manage-

ment policy. The policy is aimed to establish a

unified system of managing issues related to

product quality and safety, and create condi-

tions for its continuous development in line

with international standards (ISO, GMP+,

ISCC, IFS, BSCI etc.) and Sustainable Devel-

opment Goals. At the center of our approach

is the preventive food management system,

which seeks to mitigate potential risks of bio-

logical, chemical, and physical hazards before

they become material.

We adhere to highest standard of quality both

of the final goods and production processes

throughout the whole value chain. Our oil-ex-

traction plants are certified with ISO 9001

“Quality management system” and ISO 22000

“Food safety management” standard, that in-

tegrates the principles of the Hazard Analysis

and Critical Control Point (HACCP) system

and application of procedures developed by

the Codex Alimentarius Commission. The ISO

9001 standard also covers our export termi-

nal. In addition, most of our assets are

certified with ISO 14001 “Environmental man-

agement” and ISO 45001 “Occupational

health and safety”, namely key trading com-

pany Kernel-Trade, six oil crushing plants, two

farming clusters, fifteen silos and one trading

terminal.

Our approach and the overall system of food

safety and quality are managed by an internal

quality management team, as well as under-

goes regular inspection and verification by in-

dependent third-party auditors. The scope of

audit covers production, storage, distribution,

and supply processes; 100% of significant

products are assessed with regards to the im-

provement of health and safety impacts.

In FY2022, a total of

80 independent audits were successfully

passed, that were performed throughout

199 days.

A total number of audits decreased (102 au-

dits in FY2021) amid safety concerns associ-

ated with the martial law in Ukraine; some

planned audits were postponed until later pe-

riods while the certification status of assets

Matrix of Kernel’s product quality certification

Standard

Oilseed processing plants

Terminals

Trading

Farming

Total

Bandurka

Vovchansk

Kropyvnytskyi

Poltava

Prykolotne

BSI

Prydniprovksyi

Starokostiantyniv

TransBulkTerminal

TransGrainTerminal

Kernel-Trade

Inerco

Avere

ISO 9001

✓

ISO 22000

✓

GMP+B1

✓

GMP+B3

✓

GMP+B4

✓

BSCI

✓

Kosher

✓

Kosher Passover

✓

Badatz

✓

Badatz Passover

✓

Halal

✓

FDA registration

✓

ISCC EU

✓

ISCC PLUS

✓

IFS

✓

Gafta

✓

China (meal sun-

flower)

✓

China (oil sunflower)

✓

China (meal rape-

seed)

✓

China (oil rapeseed)

✓

Belarus (meal)

✓

ISO 14001

✓

ISO 45001

✓

Total

101

✓

certificates that are to be terminated due to lost value significance

✓

certificates obtained in FY2022

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

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Sustainability: Social capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

remained. For the same reason, there was an

increase in the overall time spent on audits

(138 days in FY2021), as audits were per-

formed online. There were no instances of in-

compliance with regulations or voluntary

codes, which would have resulted in fines,

penalties, or warnings.

Quality of sunflower oil

Kernel’s oil crushing and bottling processes in

Poltava are certified in accordance with the

BSCI standard (grade A), that speaks to our

responsibility as an employer and high social

performance. We also certified our laboratory

(ISO 17025 “General requirements for the

competence of testing and calibration labora-

tories”), which conducts regular sample anal-

ysis of sunflower oil, meal and grain to confirm

their compliance with quality standards. Fi-

nally, our TransBulkTerminal is certified for

conducting fumigation activities, in accord-

ance with Gafta standards.

Furthermore, our production assets are com-

pliant with Kosher, Kosher Passover, Badatz

and Badatz Passover requirements of Jewish

dietary regulations, as well as the Muslim

Halal food standards. Four of our plants are

registered by U.S. Food and Drug Administra-

tion (FDA), making our sunflower oil, including

high oleic sunflower oil, in bottles and flexi-

tanks suitable for the USA market. Our bot-

tling facilities are certified under FSSC 22000.

In addition, oil extracting plants with bottling

facilities are certified in accordance with IFS,

which allows us to sell bottled sunflower oil

and sunflower oil in flexi-tanks to European

countries; one of our plants obtained a coun-

try-specific license to sell sunflower oil to

South Korea. We supply bottled sunflower oil

to reputable international retail chains (Metro,

Walmart, Maxima etc.).

Finally, four of our oil extraction plants (we

plan to terminate certification for Prykolotne

OEP) as well as our trading entities are certi-

fied in line with ISCC EU standard, which

makes production of sunflower oil and meal

compliant with the legal sustainability require-

ments of the EU Renewable Energy Directive

(RED II) and Fuel Quality Directive.

Quality of meals

Our whole value chain of protein meal is cer-

tified with the applicable feed quality and

safety standard, namely GMP. All our oilseed

processing plants are certified with GMP+B1;

our export terminals, as well as trading enti-

ties, Kernel-Trade, Inerco and Avere, are cer-

tified with GMP+B3, ensuring feed safety in

collection, storage, transshipment, and trade

of meals. Finally, our Switzerland based trad-

ing entity, Inerco, is also compliant with

GMP+B4, which demonstrates feed safety in

transportation and affreightment.

In addition, three of our oil extraction plants,

as well as two trading entities, Kernel-Trade

and Inerco, are certified in line with ISCC

PLUS, with regards to meals production. Our

sunflower meal is also suitable for export to

China as it complies with country-specific reg-

ulations.

Quality of crop production and storage

Within the whole landbank of Kernel, 363

thousand hectares

are certified with ISCC

EU requirements, which ensures that crops

production is performed in environmentally

and socially sound ways. Under this certifica-

tion produced crops are considered compliant

with biofuel supply chain sustainability re-

quirements outlined in the EU RED II. At all

our grain silos we build our food safety man-

agement system on the HACCP principles

(Hazard Analysis Critical Control Point),

namely: (1) conduct a hazard analysis, (2) de-

termine critical control points (CCPs), (3) es-

tablish critical limits, (4) establish monitoring

procedures, (5) establish corrective actions,

(6) establish verification procedures, and (7)

establish record-keeping and documentation

procedures.

Implementation of these principles aim to pre-

vent and reduce occurrence of food safety

risks through analysis and control of biologi-

cal, chemical and physical hazards through-

out the production chain.

Excluding assets held for sale

www.ker

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

Sustainability: About the report

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

ABOUT THE REPORT

Disclosure of non-financial information as part

of Kernel’s Annual report is one of the key

channels of communicating our performance

to stakeholders in terms of sustainable devel-

opment and climate actions, as well as our

progress on creating long-term business

value by integrating ESG principles in our op-

erations.

This report is prepared in line with the Global

Reporting Initiative (GRI) standard, Core op-

tion; it also reflects recommendations of

GPW’s (Warsaw Stock Exchange) ‘ESG re-

porting Guidelines’ and ‘Best corporate gov-

ernance practice 2021’. When identifying the

content of the report we also ensure compli-

ance with relevant regulations, including the

Luxembourg Law of 23 July 2016 on disclo-

sure of non-financial and diversity information

(the “Law of 23 July 2016”), implementing the

European Directive 2014/95/EU.

Stakeholder engagement

Kernel identifies a total of 12 groups stake-

holders that are subject to interinfluence and

ongoing interaction with the company. These

influences and stakeholders’ categorization

are identified in Kernel’s management vision,

as well as analysis of the dynamic in stake-

holders’ feedback and media screening. The

company’s management regularly reviews the

list of stakeholder groups.

Our approaches towards interactions with

stakeholders are governed by the Stake-

holder Engagement Policy, which we updated

in FY2022 to make it aligned with relevant

IFC’s Performance Standards.

Material topics and report content

Evaluation of topics’ materiality and content of

the ‘Sustainability’ section of this report is

based on the results of stakeholder engage-

ment process, throughout which we identified

interests and expectation of key stakeholder

groups, namely capital providers (shareholder

and debt providers), regulatory authorities,

employees, and environmental/social NGOs.

This was complemented with the manage-

ment’s assessment of priorities and im-

portance of different aspects of the company’s

sustainability, or ESG, agenda.

The materiality of such topics has been as-

sessed against two criteria: (1) influence on

stakeholder assessments and decisions; and

(2) significance of economic, environmental,

and social impacts. The topics with the high-

est combination of scores for both criteria

were defined as material. Furthermore, Ker-

nel’s executive management approved the list

of topics that are subject to disclosure in the

‘Sustainability’ section of the report. Bounda-

ries for material topics includes Kernel subsid-

iaries where company has operating control,

unless stated otherwise. All identified topics

are considered material both internally and

externally. The content of this section of the

report also reflects our Communication on

Progress on implementing principles of the

UN Global Compact, namely:

• Human rights and Labor (chapter ‘Human

capital’);

• Environment (chapter ‘Environmental cap-

ital’);

• Anti-corruption (chapter ‘Social capital’).

…………….………………………………………………..…..……………..…..…..…..………………..

Methods of engagement with key stakeholder groups

Stakeholder

groups

Engagement method

Employees

→ Learning and development programs

→ Internal communications

→ Corporate social media and the company’s website

→ Corporate hotline for submitting compliance related inquiries

→ HR Conference and Strategic sessions for each business division

Shareholders,

creditors,

bondholders

→ Annual reports, three quarterly reports; Annual General Meetings

→ Corporate social media and the company’s website

→ Online/offline one-to-one meetings

→ Online communication via email and investors’ questionnaires

→ Roadshows and site visits; Investment conferences

Local

communities

→ Environmental and social impact assessments

→ Online/offline one-to-one meetings

→ Dedicated channels of corporate social media and the company’s website

→ Hot line for submitting compliance related inquiries

→ Printed material distributed among communities

National and lo-

cal government

→ Online/offline one-to-one meetings

→ Corporate social media, the company’s website and the website of the char-

itable foundation “Together with Kernel”

→ Local and national media

→ Corporate hotline for submitting compliance related inquiries

Civil society or-

ganiza-

tions/NGOs

→ Online/offline one-to-one meetings

→ Corporate social media and the company’s website; Annual reports

→ Corporate hotline for submitting compliance related inquiries

Local and na-

tional media

→ Corporate social media and the company’s website

→ Online/offline one-to-one meetings

→ Email communications

Customers

→ Corporate social media; website of Company and company’s brand names

→ Brand exhibitions and specialized events; annual reports

→ Corporate hotline for submitting compliance related inquiries

→ Costumer research and brand health tracking

Partners

(Open Agribusi-

ness)

→ Online/offline one-to-one meetings

→ Online communication via email

→ Brand exhibitions and specialized events

Suppliers

→ Supply Chain Sustainability Program

→ Online/offline one-to-one meetings Corporate social media and the com-

pany’s website

Certification

bodies

→ Online/offline one-to-one meetings; site visits

→ Disclosure/application requirements for certification bodies

Matrix of Kernel’s material ESG topics

Category of

impact

Material topic

Topic boundary

Social capital

→ Economic performance and impact

All business segments

→ Anti-corruption and compliance

All business segments

→ Support of local communities and society as a whole

All business segments

→ Product quality and customer safety

All business segments

→ Interactions with suppliers

All business segments

Environmental

capital

→ Energy management

All business segments

→ Water and effluents management

All business segments

→ Waste management

All business segments

→ Biodiversity management

Farming

→ Climate actions

All business segments

→ Monitoring of environmental impacts and ecological com-

pliance

All business segments

Human capital

→ Employment

All business segments

→ Training and career advancement

All business segments

→ Human rights, diversity, and inclusion

All business segments

→ Freedom of associations and collective bargaining

All business segments

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

GRI CONTENT INDEX

Material topic

Disclosure

number

Disclosure title

References and comments

GRI 102: General Disclo-

sures 2016. Organizational

profile

102-1

Name of the organization

Kernel Holding S.A

102-2

Activities, brands, products, and services

Our business model (p.7), Kernel’s corporate

website

102-3

Location of headquarters

Kyiv, Ukraine

102-4

Location of operations

Key Kernel’s assets are located in Ukraine

(p.8)

102-5

Ownership and legal form

Group structure (p.69), Share capital and sig-

nificant shareholders (p.69)

102-6

Markets served

Geographic locations: sunflower oil sold in

bulk (p.17) bottled sunflower oil (p.17), grain

export markets (p.17)

Sectors served: food and agriculture

Types of customers and beneficiaries: global

soft commodity traders and processors of ag-

ricultural commodities, feed compounders,

retail chains and distributors

102-7

Scale of the organization

Total number of employees: (p.56)

Total number of operations: three business

segments: Oilseed Processing, Infrastruc-

ture and Trading, Farming (p.6, 7, 105).

Net revenues: key highlights (p.2)

Total capitalization: market capitalization (;

for updated figures please see Kernel profile

on Warsaw Stock Exchange website); credit

metrics (p.13)

Quantity of products or services provided:

Kernel a Glance (p.8)

102-8

Information on employees and other workers

General employment information (p.56)

Workers who are not employees perform in-

significant portion of activities. Significant

variations in the numbers includes only sea-

sonal variations of employees in Kernel farm-

ing business, which does not exceed 6% of

total headcount. Data compiled by Kernel

employee accounting system; General em-

ployment information

102-9

Supply chain

Our Business Model (p.7), Interactions with

suppliers (p.65)

Types of suppliers: independent farmers-

suppliers of grain and oilseeds, suppliers of

inputs to crop production (seeds, fertilizers,

crop protection agents, fuel), suppliers of

other inputs (natural gas, energy)

102-10

Significant changes to the organization and its

supply chain

There were no significant changes to Kernel

supply chain in FY2022.

102-11

Precautionary Principle or approach

The Group’s entities apply the Precautionary

Principle through maintaining compliance

with the Law of Ukraine on Environmental

Impact Assessment (p.49). The law requires

a promoter to provide scientific evidence of

no threats of serious or irreversible environ-

mental damage associated with the planned

development and activities. Unless such evi-

dence is presented, no statutory authoriza-

tion can be granted to the development and

activities in question.

The same principle works for environmental

permitting. No emission or water use permit

can be granted unless an applicant pre-

sented evidence of impacts staying below

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Material topic

Disclosure

number

Disclosure title

References and comments

established thresholds (environmental qual-

ity standards). Kernel’s subsidiaries hold all

applicable environmental permits (p.49)

102-12

External initiatives

Kernel endorses the following externally-de-

veloped economic, environmental and social

charters, principles, and other initiatives:

International Labour Organization's Funda-

mental Principles and Rights at Work;

United Nations Global Compact (UNGC);

United Nations Universal Declaration of Hu-

man Rights;

Carbon Disclosure Project (CDP);

Task Force on Climate-Related Financial

Disclosures (TCFD);

Global Reporting Initiative (GRI).

102-13

Membership of associations

Kernel, through its subsidiaries, is a member

of several industry associations in Ukraine,

including:

European Business Association (incl. Logis-

tics Committee);

American Chamber of Commerce;

Ukrainian Grain Association;

Ukrainian Agrarian Association;

U.S.-Ukraine Business Council;

Federation of Oils, Seeds and Fats Associa-

tions;

Grain and Feed Trade Association;

UkrOliyaProm;

Ukrainian Network of Integrity and Compli-

ance;

UN Global Compact

GRI 102: General Disclo-

sures 2016. Strategy

102-14

Statement from senior decision-maker

Chairman’s statement (p.4)

GRI 102: General Disclo-

sures 2016. Ethics and in-

tegrity

102-16

Values, principles, standards, and norms of

behavior

Business ethics and compliance section on

Kernel’s corporate website

Sustainability section on Kernel’s corporate

website

102-17

Mechanisms for advice and concerns about

ethics

Anti-corruption and compliance (p.62)

GRI 102: General Disclo-

sures 2016. Governance

102-18

Governance structure

Governance structure of the organization

(p.74)

In FY2022 the Company established a Sus-

tainability committee at the Board of Direc-

tors, responsible for overseeing the develop-

ment of the ESG and climate corporate gov-

ernance agenda.

GRI 102: General Disclo-

sures 2016. Stakeholder

engagement

102-40

List of stakeholder groups

Stakeholder engagement (p.68)

102-41

Collective bargaining agreements

Freedom of association and collective bar-

gaining (p. 62)

102-42

Identifying and selecting stakeholders

Stakeholder engagement (p.68)

102-43

Approach to stakeholder engagement

Stakeholder engagement (p.68)

102-44

Key topics and concerns raised

Stakeholder engagement (p.68)

GRI 102: General Disclo-

sures 2016. Reporting

practice

102-45

Entities included in the consolidated financial

statements

Notes 1 to the Consolidated Financial State-

ments (p. 97)

102-46

Defining report content and topic Boundaries

Material topics and report content (p.68)

102-47

List of material topics

Material topics and report content (p.68)

102-48

Restatements of information

No restatements of information took place in

FY2022

102-49

Changes in reporting

There were no changes in the list of material

topics and topic boundaries

102-50

Reporting period

Financial year 2022 ended 30 June 2022.

See also Note 1 to the Consolidated Finan-

cial Statements

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Material topic

Disclosure

number

Disclosure title

References and comments

102-51

Date of most recent report

4 October 2021 is the date of the most recent

previous report, as a sustainability section of

the FY2021 annual report

102-52

Reporting cycle

Annual

102-53

Contact point for questions regarding the re-

port

sustainability@kernel.ua; ir@kernel.ua

102-54

Claims of reporting in accordance with the

GRI Standards

This report has been prepared in accordance

with the GRI Standards:

Core option

102-55

GRI content index

p.69-73

102-56

External assurance

The Company does not have a policy regard-

ing external assurance. FY2022 Sustainabil-

ity report was not externally assured

GRI 201: Economic Perfor-

mance 2016

GRI 103: Management Approach 2016

Economic performance and impact (p. 63)

Material topics and report content (p.68)

About the Report (p.68)

201-1

Direct economic value generated and distrib-

uted

Economic performance and impact (p. 63)

201-2

Financial implications and other risks and op-

portunities due to climate change

Approach to climate risk identification and

management (p.51)

Material climate-related risks (p.51)

201-4

Financial assistance received from govern-

ment

Economic performance and impact (p. 63)

GRI 203: Indirect Eco-

nomic

Impacts 2016

GRI 103: Management Approach 2016

Support of local communities and society as

a whole (p.64)

About the Report (p.68)

203-1

Infrastructure investments and services sup-

ported

Social projects and charity spendings (p.64)

203-2

Significant indirect economic impact

Support of local communities and society as

a whole (p.64)

GRI 205: Anti-corruption

2016

GRI 103: Management Approach 2016

Anti-corruption and compliance (p.62)

About the Report (p.68)

205-1

Operations assessed for risks related to cor-

ruption

Anti-corruption and compliance (p.62)

205-2

Communication and training about anti-cor-

ruption policies and procedures

Anti-corruption and compliance (p.62). We

do not provide a breakdown of communica-

tion and training by regions, as all such activ-

ities happen in Ukraine

205-3

Confirmed incidents of corruption and actions

taken

Anti-corruption and compliance (p.62)

GRI 302: Energy 2016

GRI 103: Management Approach 2016

Energy management (p.43)

About the Report (p.68)

302-1

Energy consumption within the organization

Energy management (p.43)

302-3

Energy intensity

Energy management (p.43)

GRI 303: Water and Efflu-

ents 2018

GRI 103: Management Approach 2016

Water and effluents management (p. 45)

About the Report (p.68)

303-1

Interactions with water as a shared resource

Water and effluents management (p. 45), En-

vironmental Protection Policy

303-2

Management of water discharge-related im-

pacts

Water and effluents management (p. 45)

303-3

Water withdrawal

Water and effluents management (p. 45)

303-4

Water discharge

Water and effluents management (p. 45)

GRI 304: Biodiversity 2016

GRI 103: Management Approach 2016

Biodiversity management (p.48)

About the Report (p.68)

304-1

Operational sites owned, leased, managed in,

or adjacent to, protected areas and areas

Biodiversity management (p.48)

Reason for omission - Confidentiality con-

strains. We omit disclosure of details of each

separate site falling within the territory of a

national park, as all such sites are lands, we

lease from third parties, and detailed list of

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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nel.ua

Sustainability: GRI Content Index

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Material topic

Disclosure

number

Disclosure title

References and comments

such sites constitutes a commercial infor-

mation, as we compete for leasing land with

other players in Ukraine

GRI 305: Emissions 2016

GRI 103: Management Approach 2016

Climate actions (TCFD disclosure) (p.50)

About the Report (p.68)

305-1

Direct (Scope 1) GHG emissions

Kernel’s Scope 1, Scope 2, Scope 3 green-

house gas emissions and other air emissions

(p.53)

305-2

Energy indirect (Scope 2) GHG emissions

Kernel’s Scope 1, Scope 2, Scope 3 green-

house gas emissions and other air emissions

(p.53)

305-3

Other indirect (Scope 3) GHG emissions

Kernel’s Scope 1, Scope 2, Scope 3 green-

house gas emissions and other air emissions

(p.53)

305-4

GHG emissions intensity

Kernel’s Scope 1, Scope 2, Scope 3 green-

house gas emissions and other air emissions

(p.53)

305-7

Nitrogen oxides (NOX), sulfur oxides (SOX), and other significant air emissions

GRI 306: Waste 2020

GRI 103: Management Approach 2016

Waste management (p.46)

About the Report (p.68)

306-1

Waste generation and significant waste-re-

lated impacts

Waste management (p.46)

306-2

Management of significant waste-related im-

pacts

Waste management (p.46)

306-3

Waste generated

Waste management (p.46)

GRI 307: Environmental

compliance

GRI 103: Management Approach 2016

Monitoring of environmental impact and eco-

logical compliance (p.49)

About the Report (p.68)

307-1

Non-compliance with environmental laws and

regulations

Monitoring of environmental impact and eco-

logical compliance (p.49)

GRI 308: Supplier Environ-

mental

Assessment 2016

GRI 103: Management Approach 2016

Interaction with suppliers (p.65)

About the Report (p.68)

308-2

Negative environmental impacts in the supply

chain and actions taken

Interaction with suppliers (p. 65)

GRI 401: Employment

2016

GRI 103: Management Approach 2016

General employment information (p.56)

About the Report (p.68)

401-1

New employee hires and employee turnover

General employment information (p.56)

401-2

Benefits provided to full-time employees that

are not provided to temporary or part-time em-

ployees

Renumeration approach and benefits (p.56)

401-3

Parental leave

General employment information (p.56)

GRI 403: Occupational

Health and Safety 2018

GRI 103: Management Approach 2016

Occupational health and safety (p.59)

About the Report (p.68)

403-1

Occupational health and safety management

system

Occupational health and safety (p.59)

403-2

Hazard identification, risk assessment, and in-

cident investigation

Occupational health and safety (p.59)

403-3

Occupational health services

Occupational health and safety (p.59)

403-4

Worker participation, consultation, and com-

munication on occupational health and safety

Occupational health and safety (p.59). Com-

pany does not have a formal joint manage-

ment–worker health and safety committee.

403-5

Worker training on occupational health and

safety

Occupational health and safety (p.59)

403-6

Promotion of worker health

Occupational health and safety (p.59), Re-

numeration approach and benefits (p.56)

403-7

Prevention and mitigation of occupational

health and safety impacts directly linked by

business relationships

Occupational health and safety (p.59)

403-8

Workers covered by an occupational health

and safety management system

Occupational health and safety (p.59). No

workers have been excluded from this disclo-

sure. OHSMS covers all Group’s entities

and, respectively, all Groups workers.

403-9

Work-related injuries

Occupational health and safety (p.59). Main

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Sustainability: GRI Content Index

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Sustainability

Corporate

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Financial

Statements

Material topic

Disclosure

number

Disclosure title

References and comments

types of work-related injuries include slips,

trips, and falls. No workers have been ex-

cluded from this disclosure.

GRI 404: Training

and Education 2016

GRI 103: Management Approach 2016

Training and career advancement (p.58)

About the Report (p.68)

404-1

Average hours of training per year per em-

ployee

Training and career advancement (p.58)

404-2

Programs for upgrading employee skills and

transition assistance programs

Training and career advancement (p.58).

We do not provide any specific transition as-

sistance programs to facilitate management

of career endings resulting from retirement or

termination of employment, apart from one-

off severance payment or retirement benefit.

404-3

Percentage of employees receiving regular

performance and career development reviews

Training and career advancement (p.58)

GRI 405: Diversity and

Equal

Opportunity 2016

GRI 103: Management Approach 2016

Human rights, diversity and inclusion (p.61)

About the Report (p.68)

405-1

Diversity of governance bodies and employ-

ees

Human rights, diversity and inclusion (p.61)

GRI 407: Freedom of As-

sociation and

Collective Bargaining 2016

GRI 103: Management Approach 2016

Freedom of association and collective bar-

gaining (p. 62)

About the Report (p.68)

407-1

Operations and suppliers in which the right to

freedom of association and collective bargain-

ing may be at risk

Freedom of association and collective bar-

gaining (p. 62).

We have no operations in which workers’

rights to exercise freedom of association may

be violated or at significant risk. We have not

identified suppliers in which workers’ rights to

exercise freedom of association or collective

bargaining may be violated.

GRI 412: Human Rights

Assessment 2016

GRI 103: Management Approach 2016

Human rights, diversity and inclusion (p.61)

About the Report (p.68)

412-2

Employee training on human rights policies or

procedures

Human rights, diversity and inclusion (p.61)

GRI 413: Local Communi-

ties 2016

GRI 103: Management Approach 2016

Support of local communities and society as

a whole (p.64)

413-1

Operations with local community engage-

ment, impact assessments, and development

programs

Support of local communities and society as

a whole (p.64)

100% of operations in our Farming segment

are involved in local community engagement,

impact assessments and/or development

programs

413-2

Operations with significant actual and poten-

tial negative impacts on local communities

Kernel is not aware of any significant nega-

tive impacts on local communities as a result

of its activities

GRI 414: Supplier Social

Assessment 2016

GRI 103: Management Approach 2016

Interaction with suppliers (p. 65)

About the Report (p.68)

414-2

Negative social impacts in the supply chain

and actions taken

Interaction with suppliers (p. 65)

GRI 416: Customer Health

and Safety 2016

GRI 103: Management Approach 2016

Product quality and customer safety (p.66)

About the Report (p.68)

416-1

Assessment of the health and safety impacts

of product and service categories

Product quality and customer safety (p.66)

We assess health and safety impacts for im-

provement for all our significant products

416-2

Incidents of non-compliance concerning the

health and safety impacts of products and ser-

vices

Product quality and customer safety (p.66)

www.ker

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

Corporate Governance

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Main characteristics of Kernel

Group structure

Kernel Holding S.A. is a public limited liability

company (société anonyme) incorporated on

15 June 2005 under the laws of the Grand

Duchy of Luxembourg (RCS Luxembourg

B109173) and has its registered address 9

Rue de Bitbourg, L-1273 Luxembourg. Kernel

Holding S.A. is a holding entity for the group

of companies (altogether ‘the Group’ or ‘the

Company’ or ‘Kernel’) and has its shares

listed on the main market of the Warsaw Stock

Exchange (Bloomberg ticker: KER PW) since

November 2007. The list of primary subsidiar-

ies is disclosed on page 98 of this report.

Share capital and significant share-

holdings

The issued capital of the Kernel Holding S.A.

as of 30 June 2022 consisted of 84,031,230

fully paid ordinary electronic single class

shares without indication of the nominal value.

Ordinary shares have equal voting rights and

rights to receive dividends (except of own

shares purchased).

According to notifications received by the

Company, three shareholders owned more

than 5% of Company’s voting shares as of 30

June 2022:

• Namsen Limited (hereinafter “Namsen"), a

legal entity directly controlled by the Chair-

man of the Board of Directors and founder

of the business, Mr. Andrii Verevskyi, own-

ing 41.29% of voting shares;

• Lind Invest, holding between 5% and 10%

of voting shares;

• Kopernik Global Investors, LLC, holding be-

tween 5% and 10% of voting shares.

In FY2022, the Company received two notifi-

cations about shareholder’s crossing the sig-

nificant threshold of 5% from Lind Invest and

Kopernik Global Investors, LLC, each control-

ling above 5% of the voting rights.

The Company is not aware of any other share-

holders except Namsen Limited, Lind Invest,

and Kopernik Global Investors, LLC, who

keep more than 5% of the share capital and

total votes.

As of 30 June 2022, the Company held no

treasury shares directly, but the Company’s

subsidiary Etrecom Investments Limited held

6,602,000 Company’s shares purchased over

the course of FY2022. Such shares are dis-

closed as treasury shares in the consolidated

financial statements and have no dividend

and voting rights.

As of 30 June 2022, there were no outstand-

ing options granting rights to acquire shares

of the Company.

On 30 August 2021, the Extraordinary Gen-

eral Meeting of shareholders (the “EGM”) ap-

proved a 2-year share buyback program for

US$ 250 million size, authorizing the Board of

Directors to purchase a maximum of 19.2 mil-

lion Company’s shares within a PLN 50-65

price range. Following that, the Company an-

nounced three invitations for shareholders to

tender for sale of Company’s shares

• On 3 September 2021, the Company an-

nounced an invitation to tender for sale in

a form of the modified Dutch auction of up

to 3,872,400 shares in the Company for a

maximum total consideration of PLN

193,620,000, assuming a price range of

PLN 50-65. On 20 September 2021, the

Company announced that as a result of

the auction its subsidiary purchased

3,227,000 Company’s shares at PLN 60

buyback price, with a settlement date be-

ing 24 September 2021.

• On 26 October 2021, the Company an-

nounced an invitation to tender for sale in

a form of the modified Dutch auction of up

to 3,575,818 shares in the Company for a

maximum total consideration of PLN

196,670,000, assuming a price range of

PLN 55-60. On 10 November 2021, the

Company announced that no offers to sell

Company shares were received as a re-

sult of the invitation.

• On 19 January 2022, the Company an-

nounced an invitation to tender for sale in

a form of the modified Dutch auction of up

to 3,780,000 shares in the Company for a

maximum total consideration of PLN

189,000,000, assuming a price range of

PLN 50-60. On 31 January 2022, the Com-

pany announced that as a result of the

auction its subsidiary purchased

3,375,000 Company’s shares at PLN 56

buyback price, with a settlement date be-

ing 3 February 2022.

As a result, the subsidiary of the Company

purchased 6,602,000 Company’s shares for

the total consideration equivalent to US$ 97

million. The shares will be kept on the account

of the Company’s subsidiary, being treated as

treasury shares for the consolidation pur-

poses without any dividend and voting rights,

until the Board of Directors decides about the

purpose of the bought-back Shares, including

in particular cancellation of Shares, sale or

other legitimate purpose. After the settlement,

the number of shares having voting and

dividend rights reduced to 77,429,230.

Corporate governance framework

Kernel is committed to high standards of cor-

porate governance and is guided by the cor-

porate governance framework determined by:

• the corporate law of the Grand Duchy of

Luxembourg as a place of incorporation (in-

cluding voluntary compliance with most of

the provisions of the X Principles of Corpo-

rate Governance of the Luxembourg Stock

Exchange); and

• the corporate governance rules set out in

the Best Practice for WSE Listed Compa-

nies 2021 as a place of Company’s shares

listing. The paragraph 29 of the Warsaw

Stock Exchange Rules require issuers to

publish the report indicating which rules the

issuer complies with and which rules the is-

suer does not comply with on a permanent

basis. The Company published such report

on 12 August 2021, available on Com-

pany’s website. The Company applied all

the principles except for detailed principles

1.4., 1.4.1., 1.4.2., 1.5., 2.1., 2.11.3.,

2.11.5., 2.11.6., 3.6., 3.9., 6.2., 6.3., 6.4.

Additionally, in the current report #19 dated

25 March 2022, the Company informed that

it incidentally breached a rule 1.6 of the

Best Practice for GPW Listed Companies

2021 because of continuing military aggres-

sion of Russia in Ukraine. That rule has not

been breached incidentally in the last two

years.

Key internal documents laying out the princi-

ples of corporate governance are Kernel

Holding S.A. Articles of Association and Cor-

porate Governance Charter. On 30 August

2021, the EGM also approved the Remunera-

tion Policy, which is applicable to the Board of

Directors and the Executive Management

……………………………………………………………………

Ownership structure as of 30 June 2022

owned

% in

voting and

dividend

Namsen

31,974,011

38.05%

41.29%

Other

45,455,219

54.09%

58.71%

Treasury

6,602,000

7.86%

Total

84,031,230

100.00%

Note 1: including two shareholders controlling between

5% and 10% of total shares: Lind Invest and Kopernik

Global Investors, LLC.

Nomination and Renumera-

tion Committee

Sustainability Committee

Audit Committee

Board of Directors

………………………………………………………………………………………………………………………………………............

Governance structure

General meeting of shareholders

Executive Management Team

Nomination and

Renumeration Committee

Sustainability Committee

Audit Committee

Board of Directors

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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nel.ua

Corporate Governance continued

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Corporate

Governance

Financial

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Strategic

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Corporate

Governance

Financial

Statements

Team. All these documents are available on

the Company’s website.

Following the regular review of the Com-

pany’s compliance with the best corporate

governance practices, the Board believes that

the Company put its best efforts to comply

with:

• the applicable corporate governance princi-

ples;

• disclosure obligations concerning compli-

ance with corporate governance principles

defined in the WSE Rules;

• regulations on current and periodic reports

published by Company as an issuer of se-

curities.

• defined in the WSE Rules;

• regulations on current and periodic reports

published by Company as an issuer of se-

curities.

General Meeting of

Shareholders

General Meeting of Shareholders is the high-

est governance body of the Company, having

the broadest power to order, carry out or ratify

all acts relating to the operations of the Com-

pany. All the details about organizing and

functioning of the general meeting of share-

holders are listed in the Articles of Association

and Corporate Governance Charter. Both

documents are published on the Company’s

website.

The annual general meeting held on 10 De-

cember 2021:

• approved the management report of the

Board of Directors, consolidated financial

statements of the Company and standalone

annual accounts of the Kernel Holding S.A.,

and the report of the independent auditor

for the year ended 30 June 2021;

• granted discharge to the directors of the

Company for the exercise of their mandates

in FY2021;

• renewed the mandates of all directors and

approved the fees of executive and non-ex-

ecutive directors for the year ended 10 De-

cember 2021;

• approved the diversity, equality and inclu-

sion policy of the Company and its subsidi-

aries.

The next annual general meeting of share-

holders is scheduled for 12 December 2022.

Extraordinary general meeting of

shareholders held on 30 August 2021:

• approved new long-term management in-

centive plan;

• approved the 2-year share buyback pro-

gram for US$ 250 million size, authorizing

the Board of Directors to purchase a maxi-

mum of 19.2 million Company’s shares

within a PLN 50-65 price range;

• approved and ratified the remuneration pol-

icy of the Company;

• appointed Mrs. Pieternel Boogaard as a

new non-executive independent director of

the Company and approved her remunera-

tion;

• appointed PwC as a new independent au-

ditor of the Company.

Extraordinary general meeting of sharehold-

ers held on 1 July 2022:

• acknowledged the resignation of Mr. Sergei

Shibaev as non-executive independent di-

rector of the Company with effect as of 12

March 2022 and granted him discharge for

the exercise of his mandate;

• appointed Mr. Andrii Miski-Oglu as non-ex-

ecutive independent director of the Com-

pany;

• acknowledged the resignation of Mrs.

Nathalie Bachich as non-executive inde-

pendent director of the Company with effect

as of 22 May 2022 and granted her dis-

charge for the exercise of her mandate;

• appointed Mrs. Daria Anna Danilczuk as

non-executive independent director of the

Company;

• amended Articles of Association.

Extraordinary general meeting of sharehold-

ers held on 23 September 2022:

• approved the creation of an authorized

share capital of the Company, excluding

the current issued share capital, of an

amount of five million seven hundred three

thousand six hundred ninety-six US Dollars

(USD 5,703,696) consisting of two hundred

sixteen million (216,000,000) shares with-

out nominal value.

• granted an authorization to the board of di-

rectors of the Company for a period of five

(5) years to, from time to time, issue shares,

to grant options to subscribe for shares and

to issue any other instruments giving ac-

cess to shares within the limits of the au-

thorized capital to such persons and on

such terms as they shall see fit and specifi-

cally to proceed with such issue without re-

serving a preferential right to subscribe to

the shares issued for the existing share-

holders and it being understood, that any is-

suance of such instruments will reduce the

available authorized capital accordingly.

All recent general meetings were held without

any physical presence of shareholders, as all

shareholders who had decided to attend the

meeting opted for direct electronic voting or

indirect voting via the independent proxy.

All the documents and resolutions adopted by

the shareholder meetings are available on the

Company’s website.

Board of Directors

The Company is managed by the Board of Di-

rectors (“the Board”), which is the ultimate de-

cision-making body, except for the powers re-

served for the general meeting of sharehold-

ers by law, the Articles of Association and the

Corporate Governance Charter. The Board is

vested with the broadest powers to perform all

acts of administration and disposition in com-

pliance with the Company’s corporate pur-

pose. The Board resolves to take its decisions

objectively, in the best corporate interest of

the Company. The Board is collectively re-

sponsible and accountable to the sharehold-

ers for the proper conduct of the business, the

long-term success of the Company, the effec-

tiveness of the reporting system and the cor-

porate governance framework.

The responsibilities of the Board include ap-

proval and review of strategies and policies,

governance of the Company and manage-

ment supervision. More detailed responsibili-

ties are specified in the Company’s Corporate

Governance Charter.

All Directors are equally accountable for the

proper stewardship of the Company’s affairs.

The non-executive directors have a responsi-

bility for ensuring that the business strategies

proposed are fully discussed and critically re-

viewed. This enables the Directors to promote

the success of the Company for the benefit of

its shareholders, while having regard to,

among other matters, the interest of employ-

ees, the fostering of business relationships

with customers, suppliers, and other stake-

holders, as well as promoting the impact of the

Company’s operations on the communities

and the environment in which the business

operates.

Composition of the Board of Directors as of 10 November 2022

63%

38%

Male

Female

Gender

25%

63%

13%

30-40

41-50

51+

Age

38%

13%

50%

less than 5 years

5-10 years

more than 10 years

Tenure

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Effective and experienced leadership

Kernel Holding S.A. is governed by the Board of Directors composing of eight members, including three non-executive directors, all of whom are

independent). Key information on Directors is as follows (with further details available on Company’s website).

Andrii Verevskyi, 47

Chairman of the Board, Founder

Andrii Miski-Oglu, 45

Independent non-executive director

Tenure: 15 years

Skills and experience:

Founded the Group’s business in 1995,

holding various executive positions within

the Group. Presently, he oversees the stra-

tegic development and overall manage-

ment of the Group.

Board Committee:

Nomination & Remuneration Committee

Tenure: <1 year

Skills and experience:

20 years’ experience in public ac-

counting and audit in EY, involved in

major EY Global audit-related initia-

tives. Andrii is Certified Public Ac-

countant in the US since 2011 and a

member of The American Institute of

Certified Public Accountants

(AICPA).

Board Committee: Chairman of the

Audit Committee, Nomination & Re-

muneration Committee

Daria Danilczuk, 35

Non-executive director

Mykhaylo Mishov, 40

Independent non-executive director

Tenure: <1 year

Skills and experience:

Agricultural commodity broker, specialized

in Black Sea commodity markets, experi-

enced in international trade and biofuels

trade and regulatory framework.

Board Committee:

Chairwoman of the Sustainability Commit-

tee, Audit Committee

Tenure: <1 year

Skills and experience:

Mr. Mishov has over 17 years’ expe-

rience in consulting, including Ernst &

Young, Deloitte and KPMG, leading

numerous strategy and performance

improvement projects for agribusi-

ness clients.

Board Committee:

Chairman of the Nomination & Remu-

neration Committee, Audit Commit-

tee, Sustainability Committee

Viktoriia Lukianenko, 46

Chief Legal Officer

Yevgen Osypov, 46

Chief Executive Officer

Tenure: 15 years

Skills and experience:

Mrs. Lukianenko is responsible for provid-

ing legal advice and counseling in all as-

pects of Kernel’s business operations.

Board Committee:

None

Tenure: 5 year

Skills and experience:

Mr. Osypov is responsible for the day-

to-day management of the Com-

pany’s subsidiaries, execution of

strategy, budgets, and Board deci-

sions. He completed several educa-

tional programs in Harvard Business

School.

Board Committee: Sustainability

Committee

Anastasiia Usachova, 51

Chief Financial Officer

Yuriy Kovalchuk, 41

Corporate Investment Director

Tenure: 15 years

Skills and experience:

Mrs. Usachova is responsible for the overall

financial management of Kernel. She holds

an MBA degree from IMD (Switzerland).

Board Committee:

None

Tenure: 11 years

Skills and experience:

Mr. Kovalchuk contributes to strategy

formulation and is responsible for the

execution of investment projects.

Yuriy has been a Fellow with Associ-

ation of Chartered Certified Account-

ants (FCCA), since September 2013.

Board Committee: None

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Financial

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The Board approves every investment, divest-

ment, acquisition, disposal, and funding trans-

action exceeding in value 5% of average 12

months trailing daily market capitalization of

the Company.

Board composition

The Board is composed of eight directors, five

of which are executive (including a Chairman)

and three are non-executive directors. Two

non-executive directors fulfill the criteria of be-

ing independent. One non-executive director

lost the status of independent director. None

of the three non-executive directors have ma-

terial relations with any shareholder who

holds at least 5% of the total vote in the com-

pany.

There were two changes in the composition of

the Board in FY2022. Specifically:

• Mr. Sergei Shibaev being a Russian citizen

resigned due to potential and / or perceived

conflict of interest associated with his role

as an independent non-executive director

of the Company, considering the recent de-

velopments in Ukraine. On 15 April 2022,

the Board of Directors of Kernel Holding

S.A. approved the resignation of Mr. Sergei

Shibaev from the Board of Directors of Ker-

nel Holding S.A. with effect as of 15 April

2022 and approved the co-optation of Mr.

Andrii Miski-Oglu as a new non-executive

director of Kernel Holding S.A. in replace-

ment of Mr. Sergei Shibaev. Andrii Miski-

Oglu is an experienced professional with 20

years’ experience in accounting and audit

and took a chair over the Audit Committee

from Mr. Sergei Shibaev.

• The Board also acknowledged the resigna-

tion of Mrs. Nathalie Bachich with effect as

of 22 May 2022. Together with that, the

Board also approved the co-optation of

Mrs. Daria Anna Danilczuk as a new non-

executive director of the Kernel Holding

S.A. in replacement of Mrs. Nathalie

Bachich. Daria Anna Danilczuk has experi-

ence in commodity markets and renewable

fuels and took a chair over the Nomination

& Remuneration Committee from Mrs.

Nathalie Bachich.

The general meeting of shareholders held on

1 July 2022 approved the co-optation of Mr.

Andrii Miski-Oglu and Mrs. Daria Anna

Danilczuk and appointed them as non-execu-

tive directors of the Company.

After the end of the reporting period, Mrs. Pie-

ternel Boogaard, resigned from the Board due

to the lack of availability of D&O insurance,

which Company was not able to extend con-

sidering the lack of offers from insurers to take

Ukrainian risks. The Board acknowledged the

resignation of Mrs. Pieternel Boogaard with

effect as of 14 September 2022 and approved

the co-optation of Mr. Mykhaylo Mishov as a

new non-executive director of Kernel Holding

S.A. as the replacement of Mrs. Pieternel

Boogaard. Mr. Mykhaylo Mishov has experi-

ence in consulting, including Ernst & Young,

Deloitte and KPMG, leading numerous strat-

egy and performance improvement projects

for agribusiness clients.

New appointments bring new expertise and

fresh views to the governance of the Com-

pany, which shall positively contribute to the

Company’s growth and expansion. Addition-

ally, new appointments positively contribute to

the Board diversity.

The non-executive directors are experienced

and influential individuals from a range of in-

dustries and countries with an appropriate mix

of skills and business experience to contribute

to the proper functioning of the Board and its

Committees.

The mandate of the Chairman expires at the

annual general shareholder meeting in De-

cember 2025. The co-optation of Mr.

Mykhaylo Mishov shall be ratified by the next

general meeting of shareholders of the Com-

pany. The mandates of all other directors ex-

pire at the annual general shareholder meet-

ing in December 2022.

N&R Committee regularly review the compo-

sition of the Board to ensure that the Board

has an appropriate, diverse and balanced mix

of competences, skills, experience, back-

ground and knowledge of the Company’s af-

fairs. Key principles governing the processes

of nomination, appointment and re-election of

Directors are described in the Company’s

Corporate Governance Charter, published on

the Kernel’s website.

Board diversity

Diversity among the Directors makes the

Board high-performing and efficient, serving

the best interests of the Company’s key stake-

holders. The diversity within the Board is en-

hanced by Kernel’s Diversity, Equality, and In-

clusion Policy, which was adopted by the

management back in 2018, and then specified

and adopted by the AGM on 10 December

2021. The policy is on constant basis consid-

ered by the N&R Committee of the Board and

by the Executive Management Team when

making employee and management appoint-

ment decisions.

The Company benefits from diversity in:

• gender (37.5% female Directors, above the

minimum 30% threshold recommended by

the Best Practice for WSE Listed Compa-

nies 2021);

• age and tenure;

• professional experience (industry and op-

erations expertise, soft commodities trad-

ing, finance and audit, banking and invest-

ments, sustainability, legal, among others);

• nationality and culture (while majority of

Directors are Ukrainians, we also have one

citizen of Poland and residents of US on the

Board of Directors).

The Directors consider the diversity among

Board members while evaluating the Board’s

effectiveness. During the annual Board self-

evaluation process conducted in FY2022,

most directors recognized the sufficient range

of expertise, attitudes, and external relation-

ships within the Board members.

Directors’ independence

Each non-executive director annually pro-

vides the other members of the Board with a

statement of meeting the independence crite-

ria indicated in Annex II of the European Com-

mission Recommendation of 15 February

2005. The statements are published on Com-

pany’s website.

As per statements received in 2022, all three

non-executive directors met the independ-

ence criteria. Later on in 2022, one non-exec-

utive director lost the status of the independ-

ent director.

Conflict of interest

A Corporate Governance Charter adopted in

May 2018 pays special attention to disclosing

conflicts of interests among Board members.

Any Director having a direct or indirect conflict

of interest must inform the Board thereof and

shall refrain from deliberating or voting on the

relevant item of the agenda. Any conflict of in-

terest should be properly declared and docu-

mented.

Members of the Board shall refrain from pro-

fessional or other activities which might cause

a conflict of interest or adversely affect their

reputation as members of the governing bod-

ies of the Company, and where a conflict of

interest arises, immediately disclose it.

The following non-exhaustive list is an exam-

ple of the duties that shall be followed by the

Directors:

• duty not to accept any benefits from third

parties, which may give rise to a personal

financial interest and/or gain;

• duty to disclose any interest in a proposed

transaction or arrangement with the Com-

pany and a separate and independent duty

to disclose any arrangement with the Com-

pany; and

• duty to avoid conflicts of interest unless au-

thorized.

There were two cases of conflict of interest

declared by Directors in FY2022:

• the Chairman of the Board declared conflict

of interest and abstained from voting on the

decision to divest selected farming enter-

prises to the investment vehicle associated

with the Chairman of the Board;

• After submitting his resignation notice, Mr.

Sergei Shibaev refrained from voting on the

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Board and Audit Committee agendas due

to potential or perceived conflict of interest

stemming from his Russian citizenship.

As of October 2022, non-executive directors

occupied the following positions in companies

outside Kernel:

• Mr. Andrii Miski-Oglu is business analysis

lead (data analytics, EY technology) at EY

Chicago office, United States.

• Mrs. Daria Danilczuk is commodities broker

and trading expert at JDI Brokers, Switzer-

land.

• Mr. Mykhaylo Mishov is Supply Chain Strat-

egy Lead at SC Johnson, Chicago, United

States.

Board committees

The Board has three committees appointed

amongst its members:

• Audit Committee;

• Nomination & Remuneration Committee

(hereinafter “N&R Committee”);

• Sustainability Committee.

The Board believes this structure is sufficient

to ensure its efficient performance of duties

and tasks, as certain specific matters are dis-

cussed first by specialized bodies with explicit

professional experience, and only then con-

sidered by the Board.

The Board regularly reviews the necessity to

establish new committees, striving to adapt to

changing needs of the business. Following

the regular annual review in FY2022, the

Board decided to establish a new Sustainabil-

ity committee, with such decision being effec-

tive since the amendment of the Corporate

Governance Charter of the Company reflect-

ing all the necessary changes regarding the

new Sustainability Committee. Such amend-

ments were adopted in October 2022.

Board self-evaluation

Following the best standards of corporate

governance, the Board regularly undertakes a

formal self-evaluation of its performance and

effectiveness as a collective body, operating

efficiency, composition, organizational struc-

ture, compliance with the rules of good gov-

ernment and relationship with the executive

management and other stakeholders. The

survey conducted in FY2022 identified no ma-

jor issues with regards to the items mentioned

above. The Board recognized the quality and

timeliness of the information provided to the

Board, the quality of the Board practices and

meetings, appropriate composition of the

Board, adequate Board roles and responsibil-

ities, proper established committee practices

etc.

Independent advice

All directors can consult with the corporate

secretary, who is available to provide assis-

tance and information on governance,

corporate administration and legal matters as

appropriate. The Directors may also seek ad-

vice on such matters, or on the other busi-

ness-related matters relating to the perfor-

mance of their duties, directly from independ-

ent professional advisors, if so desired, at the

Company’s expense.

Board activity report

The Board held eleven meetings in FY2022,

all of which via teleconference. The average

attendance rate for all directors was 95% for

the reporting period.

Typically, at each meeting, the Chairman of

the Board, together with the Chief Financial

Officer, report on the strategy implementation,

present recent developments and manage-

ment accounts. The workplan of the Board for

FY2022 included, among others, the following

items:

• review of the impact of the Russian war

against Ukraine on the Company’s opera-

tions

• review of Company’s mid-term strategy and

approval of budget;

• review and approval of annual, semi-annual

and quarterly accounts; review of opera-

tions updates;

• review of management accounts and fi-

nancing transactions;

• review of corporate-governance-related

questions;

• supervision of the risk management pro-

cess: approval of top risks for the Company

and mitigation plan, review of reports on top

risks mitigation activities; update on imple-

menting the risk management system; re-

view of risk limits; review of outstanding le-

gal cases;

• updates from Audit Committee and N&R

Committee;

• review of the performance of the Group

sustainability function;

• selection and nomination of new independ-

ent non-executive directors;

• various ad-hoc items (M&A updates, up-

dates on market situation, Avere perfor-

mance review, approval of the share buy-

back transactions).

Over the course of FY2022, the Board also

approved financing and investment transac-

tions, share buyback transactions and took

other corporate decisions via circular resolu-

tions.

Executive Management Team

The Executive Management Team is respon-

sible for the overall financial and operating re-

sults of the Company’s subsidiaries, heading

operating segments and providing support

functions on a daily basis. The Executive

Management Team focuses on strategy im-

plementation, financial and competitive per-

formance, commercial and technological de-

velopments, succession planning and

organizational development.

The Executive Management Team is headed

by the Chief Executive Officer (the “CEO”),

who is appointed and removed by the Board

and report directly to the latter. The CEO is

responsible for the day-to-day management

of the Company’s subsidiaries, execution of

strategy, budgets, and Board decisions. The

CEO delegates his/her responsibilities to the

other members of the Executive Management

Team.

The Executive Management Team consists of

15 professionals including CEO, benefitting

from the diversity among its members. All the

members of the Executive Management

Team other than CEO are appointed and re-

moved, as applicable, by the Board upon pro-

posal by the N&R Committee after prior con-

sultation with the CEO, save where he is sub-

ject of the procedure. The full list of the mem-

bers of the Executive Management Team, in-

cluding short biographies for each member is

available on the Company’s website.

Responsibilities of the Executive Manage-

ment Team are described in more detail in the

Company’s Corporate Governance Charter,

available on the Company’s website.

There are various committees operating on

the Executive Management Team level, in-

cluding the Strategic Committee, the Invest-

ment Committee, the Trade Committee, and

the Risk Committee.

Remuneration report

This remuneration report is published in ac-

cordance with the article 7ter of the same law,

the Luxembourg law of 24 May 2011 on the

exercise of certain rights of shareholders at

general meetings, as amended.

The compensation principles for the Board

and the Executive Management Team are

specified in the Remuneration Policy of the

Company. The Group pays remuneration to

the Board and to the Executive Management

Team only in the accordance with the Remu-

neration Policy. The Remuneration Policy

must be submitted to a vote by the general

meeting at every material change and, in any

case, at least every four years.

The EGM held on 30 August 2021:

• approved a new long-term management in-

centive plan in a form of share put option

agreements; and

• approved the Remuneration Policy, follow-

ing the requirements of the Article 7bis of

the Luxembourg law of 24 May 2011 on the

exercise of certain rights of shareholders at

general meetings, as amended.

ESG-linked KPIs are not integrated into the

compensation schemes of the Board and the

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Executive Management Team.

Remuneration of the Board

Compensation of the Directors of the Com-

pany is comprised only of the fixed fees paid

for the services provided by the Directors in

their capacity as members of the Board of Di-

rectors of the Company. There is no perfor-

mance-based variable component, pension,

retirement, or similar benefits provided by the

Company. This ensures a certain degree of

independence when it comes to fulfilling the

Board’s duties towards the Executive Man-

agement Team. On top of that, Directors are

reimbursed for certain travel, hotel and other

expenses related to the exercise of their du-

ties. The fees paid to the independent direc-

tors and the fees paid to executive directors

are approved at the annual general share-

holders’ meeting. See more details on the

remuneration of the Board in the Remunera-

tion Policy of the Company.

Four executive Directors in their capacity as

members of the Executive Management

Team also receive compensation for their ser-

vices provided to subsidiaries of the Com-

pany, with such compensation being paid by

the subsidiaries of the Company.

Compensation structure of the Executive Management Team

Fixed

remuneration

Members of the Executive Management Team receive a base salary determined at the discretion of the Board of Directors,

commensurate with the respective position and the individual profile of the relevant members in terms of qualifications, skill

set, and experience. All amounts are fixed and shall be paid monthly. In FY2022, the aggregated base salary for 15 members

of the Executive Management Team amounted to US$ 2,949 thousand paid by the subsidiaries of the Company.

Variable

remuneration

An annual variable monetary bonus (if applicable) is paid as well. Such bonus is determined by the formula approved by the

Board of Directors upon the recommendation of the N&R Committee. The bonus shall reward the members of the Executive

Management team for the financial performance of the Group, which derives from the financial performance of each of its

subsidiaries where each respective member of the Executive Management Team is employed or has contractual obligations.

The structure of the variable remuneration is as follows:

• The bonus pool for 13 members of the Executive Management Team (the “Bonus Pool”) is expressed as a percentage of

the consolidated EBITDA of the Group less the consolidated financial costs of the Group (“EBITDA Less Finance Costs”),

with a minimum threshold level of US$ 123 million required to activate the pay-out. The Bonus Pool as a percentage of

EBITDA Less Finance Costs is gradually increasing starting from 0.46% of EBITDA Less Finance Costs in case EBITDA

Less Finance Costs exceeds US$ 123 million and reaching 3.66% of EBITDA Less Finance Costs in case EBITDA Less

Finance Costs exceeds US$ 443 million. The exact allocation of the Bonus Pool between the relevant members of the

Executive Management Team is determined by the N&R Committee.

• Two members of the Executive Management Team have different metrics determining their variable remuneration, includ-

ing the financial results of the business divisions they lead, the Group EBITDA and personal key performance indicators.

The variable remuneration is paid by the subsidiaries of the Company for duties and services provided by members of the

Executive Management Team to subsidiaries of the Company. In FY2022, the aggregated variable remuneration for 15 mem-

bers of the Executive Management Team amounted to US$ 5,543 thousand to be paid by the subsidiaries of the Company.

Long-term

management

incentive

plan

Seven members of the Executive Management Team are subject to the long-term management incentive plan which shall

reward such members of the Executive Management Team for accomplishing individual performance goals related to the

duties and services provided by such individuals to subsidiaries of the Company, altogether contributing to the better financial

and non-financial results of the group of companies to which the Company belongs over the long-term period and aligning

the interests of the Executive Management Team with those of the shareholders of the Company. The long-term management

incentive plan is duly reviewed by the N&R Committee and approved by the Board of Directors after the generic terms thereof

having been approved by the general meeting of shareholders. Seven members of the Executive management team are

granted with put options providing the right but not the obligation to sell a fixed number of Company’s shares owned by

management at the moment at Put Price during the exercise period:

• exercise period shall commence on 1 November 2024 and end on 31 December 2025, if no put options are exercised

during Exercise Period, then such put options shall lapse. Put option also provides for acceleration events which dictate

that the put options may be exercised before the commencement of the exercise period if the following events occur: 1)

the cessation of trading of Company's shares at the Warsaw Stock Exchange or any other recognized stock exchange; or

2) a change of control event where the shareholding of Namsen Limited or its ultimate beneficial owner in Kernel's total

votes falls below twenty five percent (25%)

• Put Price is determined as lower of (1) US$ 23.80; or (2) operating profit before working capital changes minus interest

paid plus interest received minus interest tax paid, minus maintenance capital expenditures in the fixed amount of US$

155,000,000, where all amounts, except for the maintenance capital expenditures, are specified in US$ in the relevant

paragraph of the consolidated statement of cash flows of the audited annual consolidated accounts of the Company and

its subsidiaries for the Financial Years 2022-2024, divided by 3 divided by 12% and divided by 84,031,230.

Some members of the Executive Management Team also keep in total 1,200,000 phantom share options which are fully

vested and lapse on 4 November 2036. Each option grants the beneficiary the right to receive the phantom payment deter-

mined as a difference between:

• the price of Company’s share traded on the Warsaw Stock Exchange and exercise price. The exercise price is equal to

the PLN 67.71 less specified leakage value per share; or

• US$ 23.80 and exercise price, if Company’s shares cease to be traded on the Warsaw Stock Exchange or any other

recognized stock exchange, or if specified change of control in relation to the Company occurs.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Remuneration of the Executive Man-

agement Team

Compensation of the members of the Execu-

tive Management Team (15 people in total) is

based on a pay-for-performance principle, re-

warding sustainable growth and long-term

value creation for shareholders of the Com-

pany. A significant portion of the remuneration

comes from a variable part depending on the

Group’s consolidated financial performance.

For details, please see the figure above.

The principles of the remuneration of the Ex-

ecutive Management Team are specified in

the Remuneration Policy.

Members of the executive management team

are not granted any pension, retirement or

similar benefits provided by the Company,

apart from those required by the law.

The Company believes that the Remuneration

Policy strongly contributes to the long-term

shareholder value creation and the

Сompany’s stability.

Nomination and Remuneration Com-

mittee

The Nomination and Remuneration commit-

tee is a continuously operating collective body

of the Board. It is established from amongst

the members of the Board and consists of

three members, including a chairman elected

by the members of the N&R Committee

amongst themselves. The majority of the

members of the N&R Committee (including

the chairman) are nonexecutive independent

Directors.

The role of the N&R Committee is to assist the

Board in fulfilling its responsibilities by review-

ing, advising and making recommendations to

the Board, the Chairman and the CEO on the

nomination to the Board and Executive Man-

agement Team and their remuneration. The

N&R Committee assists the Board in nominat-

ing and assessing candidates for both direc-

torship and managerial positions, establishing

and reviewing the compensation principles

specified in the Remuneration Policy. The

N&R Committee ensures that only persons

with the adequate competences, experience

and skills are appointed to the Board. The

N&R Committee also supports the Board in

preparing the Board’s remuneration proposals

to the shareholders’ general meeting. A de-

tailed list of N&R Committee responsibilities is

available in Corporate Governance Charter,

published on the Company’s website.

Nomination and Remuneration Com-

mittee’s activity report

The N&R Committee held two scheduled

meetings during the reporting period, discuss-

ing the composition of the Board, perfor-

mance of the CEO and the Executive

Management Team, changes within key man-

agement personnel. Additionally, the Nomina-

tion and Remuneration Committee had two

ad-hoc meetings discussing the nomination of

the new independent non-executive directors.

On the additional meeting held in October

2022, the N&R Committee settled on the Ex-

ecutive Management Team compensation for

FY2022 standing at US$ 8,492 thousand (in-

cluding a bonus of US$ 25,842) for 15 key ex-

ecutives, as compared to the total compensa-

tion of US$ 29,334 thousand (including a bo-

nus of US$ 25,842) a year ago for 15 execu-

tives.

Accountability and audit

Going concern

The Group’s business activities, together with

the factors affecting its performance, position

and future development are set out in the stra-

tegic report on pages 1-40. The financials of

the group, its liquidity position, borrowing fa-

cilities and applicable terms are described in

the financial statement’s accounts.

Current economic conditions have fostered

the development of a number of risks and un-

certainties for the Company, in particular re-

lated to the war in Ukraine (see details in the

Risks and Uncertainties section of this report).

The Directors have reviewed the current and

projected financial position of the Company,

making reasonable assumptions about the fu-

ture trading and production performance, as

well as the debt requirements. The results

show that the Company should be able to

operate within the levels of its available

capital. Therefore, the Board has a reasona-

ble expectation that the Company has ade-

quate resources to continue in operational ex-

istence for the foreseeable future. Accord-

ingly, the Board continues to adopt the going

concern basis in preparing the annual report

and accounts.

Takeover disclosure

The Company’s shares are in electronic form

and are freely transferable, subject only to the

provisions of law and the Company’s Articles

of Association. There are no agreements be-

tween the Company and its employees or di-

rectors providing for compensation of the loss

of office or employment (whether through res-

ignation, purported redundancy, or otherwise)

that would occur because of a takeover bid.

Put options and phantom options granted un-

der management incentive plans incorporate

accelerated vesting in the event of a takeover.

The Company in the ordinary course of busi-

ness has entered into various agreements

with customers and suppliers around the

world. Some of the Company’s borrowing

agreements, which either by their nature or

value may represent significant agreements,

do provide for the right of termination upon a

change of control of the Company. The com-

mercial sensitivity of these agreements pre-

vents their details from being disclosed.

Except for the preceding disclosure, there are

no other significant agreements to which the

Company is a party that take effect, alter, or

terminate upon a change of control following

a takeover of the Company.

Audit Committee

The Audit Committee is a continuously oper-

ating collective body of the Board. It consists

of three members including a chairman, all of

whom are non-executive independent direc-

tors. The members have competence in ac-

counting and audit, and the competence rele-

vant to the sector in which the company is op-

erating. The Audit Committee is fully capable

of overseeing the affairs of the Company in

the areas of adequacy and effectiveness of

the Kernel’s system of financial reporting, cor-

porate governance, internal controls, and risk

management.

The functioning and key responsibilities of the

Audit Committee are described in the Articles

of Association, and further specified in the

Corporate Governance Charter.

………………………………………………………………………………………………………………………………………..............

Remuneration of the Board of Directors

US$ thousands

FY2018

FY2019

FY2020

FY2021

FY2022

Chairman of the Board

250

200

Other executive Directors

Non-executive Directors

268

260

275

Total Board of Directors

568

500

515

Excluding reimbursement of travelling expenses incurred by Directors in performing their duties

………………………………………………………………………………………………………………………………………..............

Remuneration of the Executive Management Team

US$ thousands

FY2018

FY2019

FY2020

FY2021

FY2022

Total remuneration

3,294

5,518

8,834

29,334

8,492

Base salary

2,467

2,419

2,508

2,834

2,949

Short-term variable bonus

827

3,099

6,326

26,500

5,543

Number of executive managers

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Audit Committee activity report

The Audit Committee had eleven meetings in

FY2022, all of which via teleconference.

All the members of the Audit Committee at-

tended all the meetings of the committee in

FY2022. Chief Financial Officer, head of inter-

nal audit and compliance officer were invited

and attended all the scheduled meetings of

the Audit Committee (four such during

FY2022). Since the war started in Ukraine, the

Audit Committee also had six ad-hoc meet-

ings with the executive management to review

the impact of Russia’s invasion of Ukraine and

to review 12-months cash flow forecast. The

representatives of external auditor (Deloitte,

and thereafter the PwC) were invited and at-

tended five meetings of the Audit Committee.

During its meetings, Audit Committee had one

closed session with the external auditor and

one session with the internal auditor to com-

municate without the presence of executives.

Additionally, the decisions of the Audit Com-

mittee were taken via two circular resolutions

signed over the course of FY2022.

To execute its key functions and discharge its

responsibilities as outlined in the Corporate

Governance Charter, the Audit Committee,

during FY2022:

• assisted the Board in monitoring the reli-

ability and integrity of the financial infor-

mation provided. The committee reviewed

the consolidated quarterly, semi-annual

and annual financial reports of the Group,

standalone annual accounts of the Com-

pany, Avere financial statements, reviewed

critical accounting policies and manage-

ment estimates, among other things;

• conducted oversight over the perfor-

mance of the internal audit function, in-

cluding the review of the internal audit ac-

tivities and action plans and reports;

• conducted oversight over the perfor-

mance of the external audit function in-

cluding review of the annual audit plan and

scope of semiannual accounts review and

areas of focus, review of auditor reports,

presentations and additional auditors re-

port, management letter review. The Audit

Committee had one face-to-face discussion

with the external auditors in the absence of

executives. The Audit Committee moni-

tored the fee cap of non-audit services, and

reviewed the contract with auditors (includ-

ing review of expected fees for the audit

and consulting services) and independence

of external auditor. Additionally, given the

duration of Deloitte mandate as an inde-

pendent auditor of the Company reached

10 years, and PwC was appointed as a new

external auditor, the Audit Committee con-

ducted the oversight over the transition

period from one auditor to another;

• conducted oversight over the risk man-

agement function. The Audit Committee

assisted the Board in the discharge of its

risk management responsibilities,

monitoring and examining the effectiveness

of the Company’s internal control and risk

monitoring system; reviewing top risks, risk

mitigation plans and results of risk mitiga-

tion activities, overseeing group risk man-

agement procedures; reviewing trade man-

agement position risk mitigation activities

(including Avere). The Audit Committee

also reviewed Kernel group-wide business

continuity plan;

• conducted oversight over the compli-

ance function, including implementation of

the Corporate Governance Charter provi-

sions, compliance with good corporate gov-

ernance practices with respect to the func-

tioning of the Audit Committee, and review-

ing reports from Kernel Compliance Officer

on the progress achieved in the enhance-

ment of Company’s compliance function;

• discussed various ad-hoc items.

After each meeting, the chairman of the Audit

Committee reports to the Board on key mat-

ters.

Over the course of FY2022 Audit Committee

conducted annual self-evaluation procedure,

which indicated potential areas of Audit Com-

mittee performance and activities improve-

ment and resulted in a clear action plan based

on results of the self-evaluation procedure.

Additionally in 2022, the Audit Committee

conducted the assessment of the efficiency of

internal control, risk management and compli-

ance systems, and internal audit function. The

Audit Committee agreed that the overall as-

sessment of the internal control and risk man-

agement system is rather effective, the overall

assessment of the compliance system is ef-

fective, and the overall assessment of the in-

ternal audit function is effective.

Internal audit

As an integral part of the system of the internal

control, the Company has an internal audit di-

vision headed by an experienced professional

reporting directly to the Board of Directors via

Audit Committee and to the CEO of the Com-

pany as a chairman of the Risk Committee

within the Executive Management Team, and

working closely with the Board. Internal audit

is a separate independent unit in Kernel’s or-

ganizational structure.

The Internal Audit provides independent and

objective assurance and consulting services

in the areas of corporate governance, internal

controls, and risk management, aimed at im-

proving the operations and performance of

the Company and its subsidiaries. Efficient in-

ternal audit function is adequate to the size of

the Company and the type of and scale of

Company’s activities.

Firstly, in FY2022 internal audit executed the

integrated assessment of the efficiency of in-

ternal control, risk management and

compliance systems of the Company in ac-

cordance with the requirements of the Best

Practice of WSE Listed Companies 2021. Ad-

ditionally, internal audit presented a self-as-

sessment of the internal audit function, ap-

proved the “Roadmap for preparation to Inde-

pendent Review of internal audit” and as a re-

sult updated the internal audit regulations.

The Independence rules defined in generally

accepted international standards of the pro-

fessional internal audit practice apply to mem-

bers of the internal audit division.

The main responsibilities of internal audit are:

• to maintain continuous support for the Di-

rectors on the risk management, internal

controls and mitigation activities by under-

taking regular or ad hoc reviews;

• to provide independent and objective eval-

uation of effectiveness and efficiency of

corporate governance, internal control and

risk-management systems within opera-

tional framework of the Company;

• to assist personnel and management of the

Company in improving the effectiveness of

risk identification and internal control sys-

tems in operations; advise and consult

them regarding how to effectively execute

their responsibilities, including recommen-

dations on specific improvements in poli-

cies and procedures; and

• to assist in open and two-way communica-

tion among internal and external auditors,

management and personnel, Audit Com-

mittee, and the Board.

The Head of internal audit regularly presents

the results of its work to the Audit Committee,

including the communication with the mem-

bers of committee in the absence of execu-

tives.

External audit

PwC Société cooperative (“PwC”), with its

registered office at 2, rue Gerhard Mercator

B.P. 1443 L-1014 Luxembourg and register

number B 65 477 with the Luxembourg Trade

and Companies’ Register, acts as an external

auditor of Kernel’s consolidated and

standalone accounts since FY2022, having

been appointed by the extraordinary general

meeting of shareholders of the Company held

……………………………………………………………………..

External auditor’s fees

US$ thousand

495

659

739

717

706

249

294

495

659

988

1,011

783

FY2018 FY2019 FY2020 FY2021 FY2022

Non-audit services Audit fees

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Corporate Governance continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

on 31 August 2021 in respect to the audit of

the consolidated and unconsolidated annual

accounts of the Company for a one-year term,

which shall begin on 10 December 2021 and

which shall terminate on 12 December 2022.

PwC attended five meetings of the Audit Com-

mittee in FY2022, presenting the review of the

semi-annual accounts, audit plan for FY2022,

and presenting to the Audit Committee the ap-

proach to accounting and audit of various

business operations, among other things. The

Audit Committee review and monitor the level

of fees paid by the Company to external audi-

tor, preapprove permissible non-audit ser-

vices and monitor the cap on non-audit fees.

Additionally, Deloitte Audit S.a.r.l (“Deloitte”),

with its registered office at 560 rue du Neu-

dorf, L 2220, Luxembourg, and register num-

ber B 65477 with the Luxembourg Trade and

Companies’ Register, attended two meetings

of the Audit Committee in FY2022 as a previ-

ous auditor of the Company, presenting the

results of the annual audit for FY2021, the re-

spective additional auditor’s report, and the

management letter. The Audit Committee also

had one meeting with Deloitte without pres-

ence of the executives.

Remuneration to auditors in FY2022

amounted to US$ 783 thousand, as compared

to US$ 1,011 thousand in FY2021. No non-

audit services for FY2022 amounted to US$

77 thousand. Non-audit services for FY2021

amounted to US$ 294 thousand, mainly re-

lated to issuing Eurobonds in October 2020.

Sustainable development

Sustainability function at Kernel is governed

by the Board via a special Sustainability Com-

mittee, which has a purpose to oversee the

overall performance of the sustainability cor-

porate function of the Company and the

Group; ensure the implementation of the en-

vironment, social and sustainability govern-

ance agendas across all business operations;

and connect these agendas with the Group’s

strategy, business objectives and capital allo-

cation decisions.

Sustainability committee was created in Octo-

ber 2022 and had no meetings by the date of

issuing of this report.

Buthiness ethics and

compliance

Kernel has embedded strong ethical stand-

ards in Company’s everyday operations, as

outlined in the Code of Conduct. Additionally,

the AGM held on 10 December 2021 ap-

proved the Diversity, Equality and Inclusion

Policy of the Company and its subsidiaries

In December 2016, Kernel initiated a Corpo-

rate Compliance Program (“CCP”) – an

action plan of bringing the Company’s compli-

ance system in accordance with best interna-

tional standards. Progress on CCP implemen-

tation was monitored each quarter by Baker

Tilly, with final report presented in summer

2019, after completion of the CCP in June

2019. Baker Tilly recognized a significant pro-

gress achieved in the implementation of Ker-

nel’s Compliance Program due to the actual

execution of both internal and external control

activities, also highlighting the aspects for fur-

ther continuous improvement.

Since 2017, compliance function within Kernel

is headed by a dedicated Compliance Officer,

who reports directly to CEO and Board of Di-

rectors via Audit Committee of the Board, as

well as attends all Audit Committee meetings

and reports on the functioning of compliance

system and compliance controls not less than

twice per year.

The compliance at Kernel is focused on the

following areas:

• preventing fraud, corruption and other

misconduct (see details in section Anti-

corruption);

• managing risk of cooperation with unre-

liable counterparties and international

sanctions. Compliance officer and security

department check business partners for

compliance risks: sanctions, corruption,

money-laundering, terrorism financing;

• making company activities compliant with

various external initiatives (GDPR, United

Nations Global Compact, equality, diver-

sity, and inclusion initiatives, etc.);

• compliance by employees with internal

documents, including the Code of Con-

duct, Policy for managing conflicts of inter-

ests, combating fraud and corruption, and

the other internal documents on compli-

ance. Compliance officer leads the compli-

ance incident management processes for

all interested parties.

We have a compliance risk management sys-

tem. We assessed compliance risks in 19 risk

areas and introduced the necessary compli-

ance controls in business processes to miti-

gate the most significant risks. We regularly

assess our compliance with internal stand-

ards of conduct and take corrective actions

accordingly.

To increase employee awareness of business

ethics, we have a special e-learning course on

the Code of Conduct. All new employees shall

reach a minimum 80% pass rate when

onboarding.

In FY2021, we created an Ethics Committee

within the Executive Management Team. The

committee is chaired by the CEO, and Com-

pliance officer acts as a secretary. The focus

of the committee is on business ethics man-

agement and control, including:

• ensuring the development of programs for

the implementation and promotion of ethi-

cal standards in accordance with the princi-

ples and values of the Company;

• approval of the register of compliance risks

and identification of the most significant

risks for ongoing monitoring and manage-

ment;

• consideration of issues related to the appli-

cation of the rules and principles of the

Code of Conduct and the Policy for manag-

ing conflicts of interests, combating fraud

and corruption. The harmonization of disci-

plinary sanctions;

• assessment of the status of the Supply

Chain management. The implementation of

risk response measures, monitoring of sup-

plier performance, risk assessment;

• consideration of the situations presented by

the Security Department based on the re-

sults of internal investigations. The harmo-

nization of disciplinary sanctions;

• approval of the changes and additions to

policies and procedures for managing com-

pliance risks, risks of corruption and fraud;

• approval of the measures to minimize /

eliminate the consequences of the imple-

mentation of the risk (incident), appoint-

ment of those responsible for their imple-

mentation, and deadlines;

• consideration of the recommendations of

the external auditors, the Compliance, the

Internal Audit Service, the Economic Secu-

rity Service on risk management to control

the implementation of measures to mini-

mize them;

• monitoring the implementation of the deci-

sions of the Committee.

Additionally, questions related to business

ethics and compliance are discussed on the

risk committee of the Executive management

team.

Our efforts in enhancing corporate govern-

ance and compliance practices were recog-

nized by such reputable institutions as Euro-

pean Investment Bank and EBRD, which pro-

vided Kernel with financing in FY2019 after a

very granular inspection of corporate govern-

ance, compliance and environmental prac-

tices adopted by the company.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Statement of the Board of Directors’ Responsibilities for the

Preparation and Approval of the Consolidated Financial

Statements

for the year ended 30 June 2022

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The Board of Directors is responsible for the preparation, publishing and fair presentation of the consolidated financial statements in accordance

with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the consolidated financial statements, and for

such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are

free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going

concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors

either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

We confirm that to the best of our knowledge and belief:

→ The consolidated financial statements of Kernel Holding S.A. (the ‘Company’) presented in this Annual Report and established in con-

formity with International Financial Reporting Standards as adopted by the European Union give a true and fair view of the consolidated

statements of comprehensive income, changes in equity and cash flows for the year that ended, and notes to the consolidated financial

statements, including a summary of significant accounting policies; and

→ The Management Report includes a fair review of the development and performance of the business and position of the Company and

the undertakings included within the consolidation taken as a whole, together with a description of the principal risks and uncertainties

it faces.

15 November 2022

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Selected Financial Data

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

USD

PLN

EUR

30 June

2022

30 June

2021

30 June

2022

30 June

2021

30 June

2022

30 June

2021

Revenue

5,331,545

5,594,800

21,848,138

21,147,168

4,734,412

4,691,799

II.

Profit from operating activities

90,667

689,293

371,544

2,605,383

80,512

578,041

III.

(Loss)/Profit before income tax

(43,481)

537,974

(178,181)

2,033,429

(38,611)

451,145

IV.

(Loss)/Profit for the period

(40,700)

505,722

(166,785)

1,911,523

(36,142)

424,098

Net cash (used in)/generated by operating activities

(305,464)

459,842

(1,251,761)

1,738,105

(271,252)

385,624

VI.

Net cash used in investing activities

(293,689)

(205,143)

(1,203,508)

(775,397)

(260,796)

(172,033)

VII.

Net cash generated by/(used in) financing activities

472,869

(48,053)

1,937,770

(181,630)

419,908

(40,297)

VIII.

Total net cash flow

(126,284)

206,646

(517,499)

781,078

(112,140)

173,294

IX.

Total assets

4,185,612

3,996,579

18,762,006

15,200,988

4,008,561

3,362,322

Current liabilities

2,238,186

916,815

10,032,669

3,487,106

2,143,511

771,316

XI.

Non-current liabilities

261,205

1,130,858

1,170,851

4,301,218

250,156

951,391

XII.

Issued capital

2,219

9,947

8,440

2,125

1,867

XIII.

Total equity

1,686,221

1,948,906

7,558,486

7,412,664

1,614,894

1,639,615

XIV.

Weighted average number of shares

80,187,230

84,031,230

80,187,230

84,031,230

80,187,230

84,031,230

XV.

(Loss)/profit per ordinary share (in USD/PLN/EUR)

(0.51)

6.10

(2.10)

23.06

(0.46)

5.12

XVI.

Diluted number of shares

80,187,230

84,031,230

80,187,230

84,031,230

80,187,230

84,031,230

XVII.

Diluted (loss)/ profit per ordinary share

(in USD/PLN/EUR)

(0.51)

6.10

(2.10)

23.06

(0.46)

5.12

XVIII.

Book value per share (in USD/PLN/EUR)

21.74

23.16

97.45

88.09

20.82

19.48

XIX.

Diluted book value per share (in USD/PLN/EUR)

21.74

23.16

97.45

88.09

20.82

19.48

Please see Note 3 for the exchange rates used for conversion

During the year ended 30 June 2022, the Group made certain corrections and reclassifications, please see Note 4 for more details.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Consolidated Statement of Financial Position

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Notes

As of

30 June 2022

As of

30 June 2021

Assets

Current assets

Cash and cash equivalents

9, 37

447,625

574,040

Trade accounts receivable

10, 34, 37

142,738

381,124

Prepayments to suppliers

107,167

127,726

Corporate income tax prepaid

12,228

12,041

Taxes recoverable and prepaid

204,686

185,966

Inventory

953,922

332,027

Biological assets

161,911

376,644

Other financial assets

14, 34, 37

205,811

294,156

Assets classified as held for sale

287,068

—

Total current assets

2,523,156

2,283,724

Non-current assets

Property, plant and equipment

1,018,073

1,065,205

Right-of-use assets

247,740

364,699

Intangible assets

124,198

62,144

Goodwill

71,620

120,925

Deferred tax assets

41,568

15,098

Non-current financial assets

20, 34

52,532

46,322

Other non-current assets

11, 34

106,725

38,462

Total non-current assets

1,662,456

1,712,855

Total assets

4,185,612

3,996,579

Liabilities and equity

Current liabilities

Trade accounts payable

37, 34

161,342

150,061

Advances from customers and other current liabilities

21, 34

89,200

140,543

Corporate income tax liabilities

7,411

46,504

Short-term borrowings

1,093,087

13,888

Current portion of long-term borrowings

—

21,715

Current portion of lease liabilities

39,111

37,338

Current bonds issued

595,038

212,495

Interest on bonds issued

7,612

15,353

Other financial liabilities

22, 37

128,537

278,918

Liabilities associated with assets classified as held for sale

116,848

—

Total current liabilities

2,238,186

916,815

Non-current liabilities

Long-term borrowings

—

227,740

Lease liabilities

200,441

287,154

Deferred tax liabilities

21,893

20,806

Bonds issued

—

593,942

Other non-current liabilities

38,871

1,216

Total non-current liabilities

261,205

1,130,858

Equity attributable to Kernel Holding S.A. equity holders

Issued capital

2,219

Share premium reserve

500,378

Additional paid-in capital

39,944

Treasury shares

(96,897)

—

Equity-settled employee benefits reserve

—

1,850

Revaluation reserve

104,303

57,290

Other reserves

—

(896)

Translation reserve

(816,490)

(703,034)

Retained earnings

1,949,731

2,048,399

Total equity attributable to Kernel Holding S.A. equity holders

1,683,188

1,946,150

Non-controlling interests

3,033

2,756

Total equity

1,686,221

1,948,906

Total liabilities and equity

4,185,612

3,996,579

Book value

1,683,188

1,946,150

Number of shares

2, 38

77,429,230

84,031,230

Book value per share (in USD)

21.74

23.16

Diluted number of shares

77,429,230

84,031,230

Diluted book value per share (in USD)

21.74

23.16

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

During the year ended 30 June 2022, the Group made certain corrections and reclassifications, please see Note 4 for more details.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Consolidated Statement of Profit or Loss

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

During the year ended 30 June 2022, the Group made certain corrections and reclassifications, please see Note 4 for more details.

Notes

For the year ended

30 June 2022

For the year ended

30 June 2021

Revenue

27, 34

5,331,545

5,594,800

Net change in fair value of biological assets and agricultural produce

12,537

132,631

Cost of sales

28, 34

(4,691,973)

(4,821,872)

Gross profit

652,109

905,559

Other operating income

63,694

111,268

Other operating expenses

(44,710)

—

General, administrative and selling expenses

30, 34

(230,405)

(318,284)

Net impairment losses on financial assets

(32,993)

(4,689)

Loss on impairment of assets

(317,028)

(4,561)

Profit from operating activities

90,667

689,293

Finance costs

(130,549)

(147,709)

Finance income

32, 34

11,322

5,950

Foreign exchange gain/(loss), net

10,140

(6,306)

Other expenses, net

33, 34

(25,061)

(3,254)

(Loss)/Profit before income tax

(43,481)

537,974

Income tax benefit/(expenses)

2,781

(32,252)

(Loss)/Profit for the period

(40,700)

505,722

(Loss)/Profit for the period attributable to:

Equity holders of Kernel Holding S.A.

(41,102)

512,708

Non-controlling interests

402

(6,986)

Earnings per share

Weighted average number of shares

80,187,230

84,031,230

Profit per ordinary share (in USD)

(0.51)

6.10

Diluted number of shares

80,187,230

84,031,230

Diluted profit per ordinary share (in USD)

(0.51)

6.10

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

nel.ua

Consolidated Statement of Profit or Loss and

Other Comprehensive Income

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Notes

For the year ended

30 June 2022

For the year ended

30 June 2021

(Loss)/Profit for the period

(40,700)

505,722

Other comprehensive income/(loss)

Items that will not be reclassified subsequently to profit or loss:

Increase/(decrease) in revaluation reserve

57,334

(6,048)

Income tax related to components of other comprehensive income

(10,321)

1,089

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translating foreign operations

(111,241)

(2,569)

Gain arising on cash flow hedge

4, 36

1,736

3,908

Income tax related to cash flow hedge

(243)

(542)

Other comprehensive loss

(62,735)

(4,162)

Total comprehensive (loss)/income for the period

(103,435)

501,560

Total comprehensive (loss)/income attributable to:

Equity holders of Kernel Holding S.A.

(106,649)

503,553

Non-controlling interests

3,214

(1,993)

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

During the year ended 30 June 2022, the Group made certain corrections and reclassifications, please see Note 4 for more details.

Exchange differences on translating foreign operations increased mostly as a result of foreign exchange rate change.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

www.ker

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www.ker

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Consolidated Statement of Changes in Equity

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Attributable to Kernel Holding S.A. shareholders

Issued

capital

premium

reserve

Addi-

tional

paid-in

capital

Equity-

settled

employee

benefits

reserve

Treas-

ury

Revalu-

ation

reserve

Other

reserves

Transla-

tion

reserve

Retained

Earnings

Total

Non-

controlling

interests

Total

equity

Balance as of 30 June 2020

2,219

500,378

39,944

4,624

—

62,249

(3,523)

(697,555)

1,584,331

1,492,667

1,456

1,494,123

Profit for the period (restated)

—

512,708

(6,986)

505,722

Other comprehensive (loss)/in-

come (restated)

—

(4,959)

1,283

(5,479)

—

(9,155)

4,993

(4,162)

Total comprehensive (loss)/in-

come for the period (restated)

—

(4,959)

1,283

(5,479)

512,708

503,553

(1,993)

501,560

Distribution of dividends (Note 2)

—

(35,293)

—

(35,293)

Effect of changes on non-control-

ling interest

—

1,344

—

(4,637)

(3,293)

3,293

—

Repurchase of share options

(Note 2)

—

(2,774)

—

(8,710)

(11,484)

—

(11,484)

Balance as of 30 June 2021 (re-

stated)

2,219

500,378

39,944

1,850

—

57,290

(896)

(703,034)

2,048,399

1,946,150

2,756

1,948,906

Loss for the period

—

(41,102)

402

(40,700)

Other comprehensive (loss)/in-

come

—

47,013

896

(113,456)

—

(65,547)

2,812

(62,735)

Total comprehensive (loss)/in-

come for the period

—

47,013

896

(113,456)

(41,102)

(106,649)

3,214

(103,435)

Distribution of dividends (Note 2)

—

(34,069)

—

(34,069)

Effect of changes on non-control-

ling interest

—

18,728

(2,937)

15,791

Recognition of share-based pay-

ments (Note 2)

—

(1,850)

—

(44,282)

(46,132)

—

(46,132)

Repurchase of treasury shares

(Note 2)

—

(96,897)

—

(96,897)

—

(96,897)

Transfer of revaluation reserve

upon disposal of property, plant

and equipment

—

2,057

—

2,057

Balance as of 30 June 2022

2,219

500,378

39,944

—

(96,897)

104,303

—

(816,490)

1,949,731

1,683,188

3,033

1,686,221

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

During the year ended 30 June 2022, the Group made certain corrections and reclassifications, please see Note 4 for more details.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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www.ker

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Consolidated Statement of Cash Flows

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Notes

As of 30 June 2022

As of 30 June 2021

Operating activities:

(Loss)/Profit before income tax

(43,481)

537,974

Adjustments for:

Amortization and depreciation

129,676

116,486

Finance costs, net

119,227

141,759

Change in loss allowance for expected credit losses on trade and other receivables

32,993

4,689

Other accruals

4,518

1,762

Gain on disposal of property, plant and equipment

(2,570)

(2,628)

Net foreign exchange loss/(gain)

(7,266)

3,483

Loss on impairment of assets

18, 19, 33

317,028

3,286

Net change in fair value of biological assets and agricultural produce

(12,537)

(132,631)

(Gain)/Loss on sales of subsidiaries and joint ventures

8, 33

—

(1,891)

Net loss/(gain) arising on financial assets classified as at fair value through profit or loss

41,333

(20,575)

Write-downs of inventories to net realisable value

98,229

—

Other gain

—

(2,323)

Operating profit before working capital changes

677,150

649,391

Changes in working capital:

Change in trade receivable and other financial assets

232,076

(241,282)

Change in prepayments and other current assets

(58,369)

(13,538)

Change in restricted cash balance

1,819

Change in taxes recoverable and prepaid

(58,918)

(52,961)

Change in biological assets

141,024

71,909

Change in inventories

(937,306)

(90,153)

Change in trade accounts payable

15,126

64,468

Change in advances from customers and other current liabilities

(127,507)

215,771

Cash (used in)/generated from operations

(116,692)

605,424

Interest paid

(130,576)

(133,442)

Interest received

11,321

5,950

Income tax paid

(69,517)

(18,090)

Net cash (used in)/generated by operating activities

(305,464)

459,842

Investing activities:

Purchase of property, plant and equipment

(119,678)

(178,296)

Proceeds from disposal of property, plant and equipment

5,876

5,855

Payment for lease agreements

(1,927)

(2,157)

Purchase of intangible and other non-current assets

(178,678)

(3,306)

Proceeds from disposal of intangible and other non-current assets

21,132

—

Acquisition of subsidiaries, net of cash acquired

—

(46,898)

Disposal of subsidiaries

—

2,505

Advances received for disposal of subsidiaries

22,867

4,289

Loans provided to related parties

(20,065)

(7,184)

Proceeds from return of loans by related parties

15,203

20,321

Payment to acquire financial assets

(38,419)

(272)

Net cash used in investing activities

(293,689)

(205,143)

Financing activities:

Proceeds from borrowings

1,073,642

296,125

Repayment of borrowings

(230,240)

(257,392)

Payment of dividends

(34,069)

(35,293)

Financing for farmers

(11,475)

(1,053)

Repayment of lease liabilities

(9,671)

(32,712)

Repurchase of treasury shares

(96,897)

—

Repurchase of share options

—

(11,484)

Proceeds from bonds issued

—

299,286

Transactions costs related to corporates bonds issue

—

(2,428)

Repayment of corporate bonds

(213,110)

(286,890)

Premium for early repayment of bonds

(1,888)

(16,108)

Net cash generated/ (used in) by financing activities

476,292

(47,949)

Effects of exchange rate changes on the balance of cash held in foreign currencies

(3,423)

(104)

Net increase in cash and cash equivalents

(126,284)

206,646

Cash and cash equivalents, at the beginning of the year

573,850

367,204

Cash and cash equivalents, at the end of the year

447,566

573,850

For non-cash financing activities please see Note 9.

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

During the year ended 30 June 2022, the Group made certain corrections and reclassifications, please see Note 4 for more details.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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1. Corporate Information

Kernel Holding S.A. (hereinafter referred to as the ‘Holding’ or the ‘Company’) incorporated under the legislation of Luxembourg on 15 June 2005

(number B 109,173 in the Luxembourg Register of Companies) is the holding company for a group of entities (hereinafter referred to as the

‘Subsidiaries’), which together form Kernel Group (hereinafter referred to as the ‘Group’ or the ‘Kernel Group’).

Kernel Holding S.A. has been a publicly traded company since 2007. Its ordinary shares are traded on the Warsaw stock exchange.

The Group’s principal business activity is the production and subsequent export of sunflower oil and meal in bulk, the production and sale of bottled

sunflower oil, the wholesale trade of grain (mainly corn, soybean, wheat and barley), farming, and the provision of logistics and transshipment

services. The majority of the Group’s manufacturing facilities is primarily based in Ukraine. As of 30 June 2022, the Group employed 10,223 people

(11,256 people as of 30 June 2021).

The Group’s financial year runs from 1 July to 30 June.

The principal place of business of the Group is Ukraine. The principal operating office of the Group is located at 3 Tarasa Shevchenka Lane, Kyiv,

01001, Ukraine.

As of 30 June, the primary Subsidiaries of the Group and principal activities of the Subsidiaries consolidated by the Holding were as follows:

Group’s effective ownership

interest and voting rights as of

Subsidiary

Principal activity

Country of incorporation

30 June 2022

30 June 2021

Inerco Trade S.A.

Trading in sunflower oil,

meal and grain.

Switzerland

100.0%

Kernel-Trade LLC

Ukraine

100.0%

Avere Commodities SA

Switzerland

100.0%

60.0%

Poltava OEP PJSC

Oilseed crushing plants. Produc-

tion of sunflower oil and meal.

Ukraine

99.7%

Bandurka OEP LLC

Ukraine

100.0%

Vovchansk OEP PJSC

Ukraine

99.4%

Prykolotne OEP LLC

Ukraine

100.0%

Kropyvnytskyi OEP PJSC

Ukraine

99.2%

BSI LLC

Ukraine

100.0%

Prydniprovskyi OEP LLC

Ukraine

100.0%

Estron Corporation Ltd

Transbulkterminal LLC

Transgrainterminal LLC

Provision of grain, oil and meal

handling and transshipment ser-

vices

Cyprus

Ukraine

100.0%

Poltava HPP PJSC

Grain elevators. Provision of

grain and oilseed cleaning, dry-

ing and storage services.

Ukraine

94.1%

Kononivsky Elevator LLC

Ukraine

100.0%

Agro Logistics Ukraine LLC

Ukraine

100.0%

Bilovodskyi KHP PJSC

Ukraine

91.12%

Hliborob LLC

Agricultural farms. Cultivation of

agricultural products: corn,

wheat, soybean, sunflower seed,

rapeseed, forage, pea and bar-

ley.

Ukraine

100.0%

Prydniprovskyi Kray ALLC

Ukraine

100.0%

Enselco Agro LLC

Ukraine

100.0%

Druzhba-Nova ALLC

Ukraine

100.0%

Druzhba 6 PE

Ukraine

100.0%

AF Semerenky LLC

Ukraine

100.0%

Hovtva ALLC

Ukraine

100.0%

These consolidated financial statements were authorized for release by the board of directors of Kernel Holding S.A. on 15 November 2022.

40% were repurchased by the Company on 9 March 2022

Economic ownership of Avere was 60% based on structure of dividend distribution and 100% based on the fact that it’s part of employee profit sharing arrange-

ment, but voting rights was 85% for the Group

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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2. Change in Issued Capital

Since 15 June 2005, the parent company of the Group is Kernel Holding S.A. (Luxembourg). The issued capital of the Holding as of 30 June 2022

and 2021, consisted of 84,031,230 ordinary electronic shares without indication of the nominal value. Ordinary shares have equal voting rights and

rights to receive dividends (except of own shares purchased).

The shares were distributed as follows:

As of 30 June 2022

As of 30 June 2021

Equity holders

Shares allotted

and fully paid

owned

Shares allotted

and fully paid

owned

Namsen Limited Liability Company registered under the legislation of

Cyprus (hereinafter the ‘Major Equity Holder’)

31,974,011

38.05%

32,903,278

39.16%

Free float

45,455,219

54.09%

51,127,952

60.84%

Own shares purchased

6,602,000

7.86%

—

Total

84,031,230

100.00%

84,031,230

100.00%

As of 30 June 2022 and 2021, 100% of the beneficial interest in the Major Equity Holder was held by Andrii Mykhailovych Verevskyi (hereinafter

the ‘Beneficial Owner’).

On 10 December 2021, the annual general meeting of shareholders approved an annual dividend of USD 0.44 per share, which were paid in full

in the amount of USD 34,069

thousand on 14 February 2022.

On 10 December 2020, the annual general meeting of shareholders approved an annual dividend of USD 0.42 per share, which were paid in full

in the amount of USD 35,293

thousand on 14 January 2021.

During the year ended 30 June 2021, the Group decided to settle the fully vested equity-settled share-based payments in cash at a price below

the fair value of the phantom share options repurchased, measured at this date. As a result of share-options repurchase, equity-settled employee

benefits reserve and retained earnings decreased by USD 2,774 thousand and USD 8,710 thousand, respectively.

On 24 September 2021 and 3 February 2022, as the result of a share buy-back program, the Group purchased the Company’s equity instruments

(3,227,000 shares constituting 3.84% and 3,375,000 shares constituting 4.02% of the total share capital, respectively) paying the consideration

equal USD 96,897 thousand, including any directly attributable incremental costs. Shares held by the Group are disclosed as Treasury shares and

deducted from Equity. The purchased shares will be retained by the Group without any voting or dividend rights.

During the year ended 30 June 2022, a new management incentive plan was introduced, according to which the Company shall grant to the

management of the put options the right to sell to the Company and the obligation to the Company to purchase in total up to 2,792,435 ordinary

shares of the Company. The consideration for each share will be a minimum of (i) USD 23.80 and (ii) operating profit before working capital

changes minus interest paid plus interest received minus interest tax paid minus maintenance capital expenditures in the fixed amount of USD

155,000,000, where all amounts, except for the maintenance capital expenditures, are specified in United States Dollars (USD) as appropriately

classified and disclosed in the consolidated statement of cash flows of the audited annual consolidated accounts of the Company and its subsidi-

aries for the Financial Years 2022-2024, divided by three divided by 12% and divided by 84,031,230. The option exercise period is set for a period

commencing on 1 November 2024 and expiring on 31 December 2025. Fair value of the put options were calculated using a Monte Carlo model

and at the grant date amounted USD 44,830 thousand, out of which USD 44,282 thousand were recognized through Retained earnings and USD

548 thousand expensed in General, administrative and selling expenses (part of Payroll and payroll related expenses). As of 30 June 2022, fair

value of the put options equaled to USD 35,370 thousand.

During the year ended 30 June 2022, the fair value of the share-based options granted previously to the management in the amount of

USD 1,850 thousand and fully vested as of 30 June 2021, was reclassified to liabilities according to call options phantom arrangement according

to which the consideration for each option (out of 1,200,000) would be the difference between the average market price of shares for the last

6 months before the date of exercise and PLN 67.71 (minus leakage value per share). The option period will expire on 4 November 2036. As of 30

June 2022, fair value of call options amounted USD 2,600 thousand (recognized as a part of non-current liabilities) and during the year ended 30

June 2022, related expenses in the amount of USD 750 thousand was recognized as a part of payroll and payroll related expenses (as of and

during the year ended 30 June 2021: USD 1,850 thousand as a part of equity-settled employee benefits reserve and no expenses were recognized,

since all the existing options have been already vested).

Luxembourg companies are required to allocate to a legal reserve a minimum of 5% of the annual net income until this reserve equals 10% of the

subscribed issued capital. This reserve, in the amount of USD 221 thousand as of 30 June 2022 and 2021, may not be distributed as dividends.

3. Operating Environment

On 24 February 2022 the Russian Federation started a full-scale military invasion of Ukraine which, due to broad security concerns, became

challenging for the further stable development of economical and finance segments in Ukraine, and the operating environment remains risky and

with high levels of uncertainty since then.

Given the fast-moving nature of the situation and the unpredictability of war, it will likely take time to assess the economic fallout. For now, the

government has prioritized defense and social spending. In June 2022, annual inflation in Ukraine had reached 21.5%. The Ukrainian economy

experienced significant challenges and the government heavily relied on international financial support.

Includes withholding tax levied in Luxembourg

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The Ukrainian government received financing and donations from international organizations and various countries to support financial stability

and to finance social related payments and military needs (International Monetary Fund, European Union, and directly from numerous countries).

It should be noted that starting from April 2022, economic activity began to restore itself: businesses and the Ukrainian population showed adap-

tation to the new conditions. According to the National Bank of Ukraine (‘the NBU’) reports, at the end of spring only 14% of enterprises working

before the war remained idle.

The NBU increased the key policy rate to 25% in June 2022. According to its most recent forecast, the real GDP of Ukraine is expected to fall by

33% for the calendar year 2022.

The NBU has imposed certain restrictions regarding withdrawals hryvnia by customers and since 24 February 2022 switched from a flexible to a

fixed exchange rate regime at UAH 29.25 for 1 USD (UAH 36.57 for 1 USD starting from 21 July 2022) on the foreign currency exchange market

to ensure the sound and stable operation of the country’s financial system. As a result, commercial interbank quotes remained close to the officially

imposed by the NBU, and bid rate was fixed as UAH 29.25 for USD 1, at a maximum point. The NBU stated that as soon as the economy and

financial system of Ukraine return to normal operation regime, the floating exchange rate will be restored. Moreover, the NBU has determined that

the ban on transactions in Ukraine using the accounts of residents of Russia or Belarus and legal entities whose ultimate beneficial owners are

based in Russia or Belarus, does not apply to social benefits, wages, utilities, taxes, fees, and other required payments. Despite the current

unstable situation, the banking system remains stable, with sufficient liquidity even as martial law continues, and all banking services are available

to its customers, both legal entities and individuals. Companies operating in Ukraine are paying taxes and money is still flowing through its financial

system.

Months after the initial full-scale military attack, fighting continues in and around several major Ukrainian cities in the East and South of Ukraine,

causing tens of thousands of civilian casualties. Russian attacks are targeted for destroying civilian infrastructure all over Ukraine, including hos-

pitals and residential complexes. At the same time, logistics routes in occupied territories were damaged and there is no access to them. Other

railway and car logistic routes are available for usage as Ukraine has an extensive road and railway network. Assets belonging to different busi-

nesses, except those located on temporary occupied territory, were not destroyed materially, based on available information, as air attacks and

missile strikes primarily destroyed military infrastructures, objects, airfields, and civilian buildings.

Upon the start of the invasion, all Ukrainian Black Sea ports stopped work due to armed conflict in the territory of Ukraine, including seas’ areas

and fully froze exportі made via Ukrainian seaports. According to the deal brokered on 22 July by the United Nations and Turkey, also referred as

“grain deal”, three Ukrainian Black Sea ports (Odesa, Chornomorsk and Pivdennyi) were unblocked beginning in August.

In the face of the invasion, the Ukrainian government has imposed export restrictions for meat and livestock, rye, oats, millet, buckwheat, sugar

and dietary salt. Furthermore, the Ukrainian Ministry of Economy will issue export permits for the group of products, subjected for licensing: wheat,

chicken meat and eggs.

Recent multiple Russian missile attacks on the Ukrainian civil energy infrastructure damaged the Ukrainian power stations and electricity distribu-

tion infrastructure, which caused power supply outages. The risk for the most exposed Oilseed Processing business is partially mitigated by the

Group’s recent investments in co-generation heat and power facilities, four of which had been already constructed at the crushing plants and now

allow to fully cover the consumption needs of the respective oilseed processing operations. In addition, any massive power outages for railway

infrastructure as well as export terminals or key silos may disrupt the grain export capabilities.

In 2020, a new coronavirus disease (COVID-19) has begun rapidly spreading all over the world, resulting in the announcement of the pandemic

status by the World Health Organization in March 2020. The Management assesses that COVID-19 had low effect on the Group’s business during

the year ended 30 June 2022, as Group’s business model of supplying food commodities to global markets is resilient to some extent to COVID-

19-related risks and disruptions given the consistent demand for food and feed worldwide.

4. Summary of Significant Accounting Policies

Basis of Preparation and Accounting

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as

adopted by the European Union.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of property, plant

and equipment for oilseeds processing segment, biological assets, agricultural produce and certain financial assets and liabilities measured at fair

value. The consolidated financial statements have been prepared on a going concern basis.

The Group’s Subsidiaries maintain their accounting records in local currencies in accordance with the accounting and reporting regulations of the

countries of their incorporation. Local statutory accounting principles and procedures may differ from those generally accepted under IFRS. Ac-

cordingly, the consolidated financial statements, which have been prepared from the Group’s Subsidiaries’ accounts under local accounting regu-

lations, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS.

Going concern

On 24 February 2022 Russian Federation launched a full-scale military invasion of Ukraine, which had a disruptive affect in Ukraine, causing an

economical and humanitarian crisis.

The Group considers the direct and indirect exposures to the impacts arising from the war on the business, as mentioned below:

• For the period after the Russian invasion of Ukraine 1150 employees joined Ukrainian military forces and territorial defense, approximately 350

of them were demobilized. Personnel of oil plant production activities and farming business remained in their working area.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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• The Group's critical facilities or infrastructure have not suffered any significant damage. The amount of partially or fully damaged fixed assets is

USD 592 thousand. Two oilseed crushing plants (Vovchansk and Prykolotne), one district of the farming company with the total land bank

1.5 thousand hectares and 290 railcars were in the occupied parts of Kharkiv region, with the book value equal to USD 50,300 thousand, as at

30 June 2022. However, as the result of successful counter actions of Ukrainian military forces, Ukraine regained control over this territory. The

Group recognized the write-off of inventories, due to the suspension of export and subsequent expiration date of the goods as well as destruction

as a result of military actions (Note 31).

• Export sales of the company consist of 97 % of total external sales, but due to the war, export flow via Ukrainian ports was reduced significantly.

Alternative export routes are limited by the capacity of the railways and are significantly more expensive in comparison with sea. Domestic sales

significantly increased, driven by the moderate availability to export goods in ordinary way.

• On 22 July 2022, Ukraine together with Turkey and UNN signed the Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian

ports (ISTGFUP), but huge uncertainty remains over its continuation.

• Logistics difficulties and a restriction of access to the market led to the lack of crops protection, fuel, fertilizers.

• Oil extraction plants operated partially due to the temporary inability to export sunflower oil via Ukrainian Black Sea ports; two of them, Vovchansk

and Prykolotne, ceased production due to the occupation as of 30 June 2022.

• Military activity in the southern part of Ukraine remains too risky for resuming export operations through seaports, operations of which are partially

opened and, consequently, the Group stopped procurement of grain and oilseeds from farmers.

• Group’s liquidity position is under the pressure due to the reduction of revenue and growth of logistic cost for alternative ways of export.

• Bank facilities appeared to be limited.

• Considering the disruptions described above, the Group’s ability to service debt suffered. The Group successfully negotiated with the banks

waivers on the repayment of the loan principal for the period ending 30 September 2022. Respective waivers were obtained prior to 30 June 2022

and the Group settled interest payments in a timely manner. As of the date of issue of these consolidated financial statements issue, the Group

obtained waivers to extend the terms of repayment of the principal of USD 626,694 thousand with the lenders and waiving of the debt covenants

and some other conditions by 30 June 2023 and USD 246,353 thousand are in the process of formalizing their waivers.

• As of 30 June 2022, the Group classified its long-term bank borrowings as short-term. As at 30 June 2022 (being the relevant covenant testing

date), the Group had exceeded certain ratios for purposes of financial covenants in certain of its bank facilities. Although an effective waiver was

in place, such waiver had an expiry date within 12 months of 30 June 2022, and, accordingly, the Group did not have an unconditional right to

defer settlement for 12 months or longer with respect to its bank facilities as at 30 June 2022 (Note 23). Accordingly, there was a risk that such

loans would be accelerated and become due and payable at a future date within 12 months of the end of the reporting period, which could in

turn trigger a cross-acceleration event of default under the Group’s outstanding bonds. As a result, the Group also did not have an unconditional

right (within the meaning of paragraph 69 d) of IAS 1 "Presentation of Financial Statements" to defer settlement of its bonds for 12 months or

longer. The Group therefore classified its long-term bonds as short-term. (Note 25).

Management has reorganized the business process in response to abovementioned impacts:

• The Group’s key priority is the safety and security of its employees and their families. The Group is coordinating, to the extent possible, the

evacuation of employees from regions engaged in active military action and is covering associated relocation costs and providing additional

assistance needed. The business processes have been reorganized to adjust to the existing challenges and to provide continuity to the Group’s

activities.

• The Group’s land bank accounts 494 thousand hectare and the Group managed to plant 95% of its land bank. The Group finished harvesting of

winter crops, and started harvesting of sunflower seeds; the other crops can be harvested in due course.

• In autumn sowing, the Group plans to change the crop structure and increase the area of wheat and soybeans in order to reduce costs for the

production of grain crops. As usual, corn production requires more fertilizes to grow and more natural gas to dry after harvest.

• Management set up new logistics routes for grain and oil export through Poland, Romania, Lithuania by truck and railway including usage of

own railway wagons (accessible quantity is 2,8 thousand). Applying new logistic routes via land borders for the period when the Black Sea ports

were closed till 30 June 2022, the Group exported goods for amount USD 120 million for 4

quarter of FY 2022.

• Moreover, on July 22 an Initiative was signed in Istanbul to create a humanitarian corridor for the safe transportation of grain and food products

from Ukrainian ports. The Group exported through the corridor 930 thousand tons of grain and 153 thousand tons of meal through 20th of

October 2022.

• The Group is fully compliant with all sanction’s rules and regulations against Russia and Belarus, including those imposed or published by

various countries and organizations. Besides, the Group refrains from dealing with persons or organizations in the list of sanctions. In this

situation the Group does not expect any influence on the supplying chain and payments flow.

• The Group suspended the implementation of several investment projects and reduced the investments in non-current assets.

• The Group's subsidiary Avere keeps operating in the usual mode.

• The Group intends to continue paying interests to its lenders while there will not be the repayment of principal amount due to renegotiated terms

and continue paying coupons to the bondholders.

The management prepared two scenarios of cash flow forecasts for the next 12 months from the date of the approval of these consolidated financial

statements, assuming full operation of the “Grain Corridor” and its suspension from November 2022. The following assumptions were used in the

scenarios:

• the “Grain Corridor” deal will continue to be in force until the end of November 2022 and neither of the parties will withdraw from the deal.

Respectively, selling prices and transportation costs will be kept at the current level. Under the second scenario, selling prices will be increased

as well as transportation cost due to reliance largely on the overland’s means of transportation;

• availability of alternative export routes via land borders and other ports;

• availability of railway roads and roads;

• spring sowing and harvesting campaigns will be successful;

• maintaining minimum sales level domestically and export to cover minimum operational expenses level and debt servicing.

• repayment of the loans principal occurs according to the renegotiated terms;

• purchase of grains from the market to maximize its trading margins;

• under the second scenario, released cash flows will be used to cover increased transportation costs.

Although the Group’s financial performance was strong in the 2021 calendar year, military actions occurring after 24 February 2022 create material

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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uncertainty for the Group in the future, including the risk of damage of assets (and insurance unlikely to meet the replacement costs), loss of

inventory as a result of military actions, the ability of Black Sea ports to continue its operations, availability of alternative export routes and disrup-

tions of the farming and oilseed processing business for the Group and for Ukraine in general. The full extent of the impact of further development

of military actions on the Group’s business is unknown, but its magnitude might be severe.

Management acknowledges that future development of military actions and their duration represent a single source of material uncertainty which

may cast significant doubt about the Group’s ability to continue as a going concern and, therefore, the Group may be unable to realize its assets

and discharge its liabilities in the normal course of business. Despite the single material uncertainty relating to the war in Ukraine, management is

continuing to take actions to minimize the impact on the Group and thus believes that application of the going concern assumption for the prepa-

ration of these consolidated financial statements is appropriate.

Adoption of New and Revised Standards

The Group has adopted all new and revised IFRS standards that became effective for annual periods beginning on or after 1 July 2021. The

material changes are as follows:

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, IFRS 16: Interest Rate Benchmark Reform — Phase 2 and Covid-19-Related Rent Con-

cessions – amendments to IFRS 16

The amendments enable entities to reflect the effects of transitioning from benchmark interest rates, such as interbank offer rates (IBORs), to

alternative benchmark interest rates without giving rise to accounting impacts that would not provide useful information to users of financial state-

ments.

These amendments did not have a material impact on the consolidated financial position or performance of the Group in the Group’s consolidated

financial statements.

Standards and Interpretations Issued but not Effective

At the date of authorization of these consolidated financial statements, the following standards, and interpretations, as well as amendments to the

standards had been issued but were not yet effective:

Standards and Interpretations

Effective for annual period

beginning on or after

Annual Improvements to IFRS Standards 2018–2020 (IFRS 1, IFRS 9, IFRS 16, IAS 41)

1 January 2022

Amendment to IAS 37: Onerous Contracts — Cost of Fulfilling a Contract

1 January 2022

Amendment to IAS 16: Property, Plant and Equipment: Proceeds before Intended Use

1 January 2022

Amendment to IFRS 3: Reference to the Conceptual Framework

1 January 2022

Initial Application of IFRS 17 and IFRS 9—Comparative Information

1 January 2023

IFRS 17: Insurance Contracts

1 January 2023

Amendments to IFRS 17 and Amendment to IFRS 4

1 January 2023

IFRS 1, IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

1 January 2023

Amendment to IAS 8: Definition of Accounting Estimates

1 January 2023

Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies

1 January 2023

Amendment to IAS 1: Classification of Liabilities as Current or Non-current — Deferral of Effective Date

1 January 2023

Management anticipates that the adoption of these standards and interpretations will not have a material effect on the consolidated financial

statements of the Group in future periods.

Functional and Presentation Currency

The Group’s presentation currency is the United States dollar (USD). The functional currency of the majority of the Group’s foreign Subsidiaries is

their local currency, except for businesses engaged in the production and sale of sunflower oil, for which USD was determined as the functional

currency.

The Group decided to change the functional currency for subsidiaries that provide transshipment services from UAH to USD starting from 1 July

2021. Based on IAS 21 The Effects of Changes in Foreign Exchange Rates, the Group determined that the changes in Group's strategy limited

the degree of autonomy of subsidiaries' operations making them dependent on activities of Kernel Trade LLC, whose functional currency is USD.

Autonomy of these subsidiaries is limited by the Group management through the centralized decision-making in terms of terminals loading, trans-

shipment volume and rates in order to fit the Group strategy of maximizing sales volumes and other primary and secondary factors for determining

the functional currency. Management also considered other primary and secondary indicators such as sales prices, infrastructure costs and cur-

rency of cash flows and financing operations.

Foreign Currencies

Transactions in currencies other than the functional currencies of the Group`s companies are initially recorded at the rates of exchange prevailing

on the dates of the transactions. Subsequently, monetary assets and liabilities denominated in such currencies are translated at the rates prevailing

on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing

at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not

retranslated.

On consolidation, the assets and liabilities of the Subsidiaries are translated at exchange rates prevailing on the reporting date. Income and

expense items are translated at the average exchange rates for the period, unless the exchange rates fluctuate significantly during that period, in

which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in Consolidated

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Statement of Profit or Loss and Other Comprehensive Income accumulated in ‘Translation reserve’.

The exchange rates during the period of the financial statements were as follows:

Currency

Closing rate as of

30 June 2022

Average rate for the

year ended 30 June

2022

Closing rate as of

30 June 2021

Average rate for the

year ended 30 June 2021

USD/UAH

29.2549

27.8426

27.1763

27.8571

USD/EUR

0.9577

0.8880

0.8413

0.8386

USD/PLN

4.4825

4.0979

3.8035

3.7798

As disclosed in Note 3, rates established by NBU might differ from the commercial rates. Therefore, these rates might not be the ones at which the

assets could be realized or liabilities could be settled. Additionally, NBU imposed certain restrictions on the transactions with foreign currency, and

hence net assets of Ukrainian subsidiaries of the Group temporarily cannot be distributed to the parent company of the Group. NBU’s Board

Resolution No. 21 dated 24 February 2022 allowed the purchase of foreign currency and cross-border transfer of currency valuables only for buying

of goods from the list of critical imports, defined by the Cabinet of Ministers of Ukraine. Additionally, the NBU reduced the settlement deadlines for

export and import transactions that were executed after 5 April 2022 from 365 to 90 calendar days to prevent capital outflows from Ukraine.

The average exchange rates for each period are calculated as the arithmetic mean of the exchange rates for all trading days during this period.

The sources of exchange rates are the official rates set by the National Bank of Ukraine for USD/UAH and by the National Bank of Poland for

USD/EUR and USD/PLN.

All foreign exchange gain or loss that occurs on revaluation of monetary balances, presented in foreign currencies, is allocated as a separate line

in the Consolidated Statement of Profit or Loss.

Basis of Consolidation

The consolidated financial statements incorporate the consolidated financial statements of the Holding and companies controlled by the Holding

(Subsidiaries) as of 30 June 2022.

The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by

the Company and its Subsidiaries. Control is achieved when the Company:

• has the power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the

three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient

to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances

in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• potential voting rights held by the Company, other vote holders or other parties;

• rights arising from other contractual arrangements;

• any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities

at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a Subsidiary begins when the Company obtains control over the Subsidiary and ceases when the Company loses control of the

Subsidiary. Specifically, income and expenses of a Subsidiary acquired or disposed of during the year are included in the Consolidated Statement

of Profit or Loss and Other Comprehensive Income from the date the Company gains control until the date when the Company ceases to control

the over Subsidiary.

All inter-company transactions and balances between the Group’s enterprises are eliminated for the consolidation purpose. Unrealized gains and

losses resulting from inter-company transactions are also eliminated, except for unrealized losses that cannot be recovered.

Non-controlling interests in Subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests as of the reporting date

represent the non-controlling equity holders’ portion of the fair values of the identifiable assets and liabilities of the Subsidiary at the acquisition

date and the non-controlling equity holders’ portion of movements in equity since the date of acquisition. Profit or loss and each component of

other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. The total comprehensive income of

Subsidiaries is attributed to the equity holders of the Company and to non-controlling interests even if this results in the non-controlling interests

having a deficit balance.

Business Combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured

at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the

Group to the former owners of the acquire and equity interests issued by the Group in exchange for control of the acquire. Acquisition costs are

expensed when incurred and included in general, administrative and selling expenses.

At the acquisition date, identifiable assets acquired, and liabilities assumed are recognized at their fair value, except that:

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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• Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance

with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;

• The Group shall recognise right-of-use assets and lease liabilities for leases identified in accordance with IFRS 16 in which the acquiree is the

lessee. The Group shall measure the lease liability at the present value of the remaining lease payments (as defined in IFRS 16) as if the

acquired lease were a new lease at the acquisition date. The Group shall measure the right-of-use asset at the same amount as the lease

liability, adjusted to reflect favourable or unfavourable terms of the lease when compared with market;

• The acquirer shall measure the value of a reacquired right recognized as an intangible asset on the basis of the remaining contractual term of

the related contract regardless of whether market participants would consider potential contractual renewals when measuring its fair value;

• Liabilities or equity instruments related to share-based payment arrangements of the acquire or share-based payment arrangements of the

Group entered into to replace share-based payment arrangements of the acquire are measured in accordance with IFRS 2 Share-based Pay-

ment at the acquisition date; and

• Assets and liabilities that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

are measured in accordance with that standard.

For each business combination, the Group measures the non-controlling interests in the acquiree either at fair value or at a proportionate share of

the acquirer’s identifiable net assets. If the initial accounting for a business combination cannot be completed by the end of the reporting period in

which the combination occurs, only provisional amounts are reported, which can be adjusted during a measurement period of 12 months after the

acquisition date.

Changes in the Group’s ownership interests in Subsidiaries that do not result in the Group losing control over the Subsidiaries are accounted for

as equity transactions. The carrying amounts of the Group’s interests and non-controlling interests are adjusted to reflect changes in their relative

interests in Subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consid-

eration paid or received is recognized directly in equity and attributed to the equity holders of the Holding.

Goodwill

Goodwill arising from a business combination is recognized as an asset at the date that control is acquired (acquisition date). Goodwill is measured

as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the

acquirer’s previously held equity interest (if any) in the entity net of the acquisition date amounts of the identifiable assets acquired and the liabilities

assumed.

Goodwill is not amortized but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be

impaired and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of

goodwill relating to the entity sold. If, after reassessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities

assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the

acquirer’s previously held interest in the acquire (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that

is expected to benefit from the synergies of the combination. The cash generated units or groups of units are identified at the lowest level at which

goodwill is monitored for internal management purposes, being the legal entity of the Group.

Non-current assets held for sale and Discontinued Operations

In compliance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, non-current assets and disposal groups are classified

as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use.

This condition is regarded as met only when the sale is highly probable within one year, and the asset or disposal group is available for immediate

sale in its present condition. Non-current assets are measured at the lower of the previous carrying amount or the fair value less costs to sell.

Events or circumstances may extend the period to complete the sale beyond one year. An extension of the period required to complete a sale

does not preclude an asset from being classified as held for sale if the delay is caused by events or circumstances beyond the Group’s control,

and there is sufficient evidence that the Group remains committed to its plan to sell the asset. In such circumstances, the asset is measured at its

fair value less costs to sell at each reporting date. Any impairment loss arising subsequent to reclassification as held for sale is recognized in the

Consolidated Statement of Profit or Loss. Non-current assets and liabilities of a disposal group classified as held for sale are presented separately

from the other assets and liabilities in the balance sheet.

Non-current assets are not depreciated or amortized while they are classified as held for sale.

If criteria for classification of the asset as held for sale are no longer met at the reporting date, the Group ceases to classify the asset as held for

sale.

A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and:

• Represents a separate major line of business or geographical area of operations;

• Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or

• Is a Subsidiary acquired exclusively with a view to resale.

The result from discontinued operations is presented in the Consolidated Statement of Profit or Loss as a separate item after the profit from

continuing operations. If the criteria for classification of the disposal group held for sale are met after the reporting date, the disposal group is not

presented as held for sale in those consolidated financial statements when issued. However, when those criteria are met after the reporting date

but before the authorization of the consolidated financial statements for issue, the Group discloses the relevant information in the notes to the

consolidated financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes

place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset

or liability. The principal or most advantageous market must be accessible to the Group.

The fair value of an asset or a liability is measured using the assumptions market participants would use when pricing the asset or liability, assuming

that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset

in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses

valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use

of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value

hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers

have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value

measurement as a whole) at the end of each reporting period.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost comprises direct materials and, where applicable, direct labour costs and

those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in,

first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion

and the estimated costs necessary to make the sale.

Biological Assets and Agricultural Produce

The Group classifies crops in fields and cattle as biological assets.

Biological assets are stated at fair value less estimated costs to sell at both initial recognition and as of the reporting date, with any resulting gain

or loss recognized in the Consolidated Statement of Profit or Loss. Costs to sell include all costs that would be necessary to sell the assets,

including costs necessary to get the assets to market.

Agricultural produce harvested from biological assets is measured at its fair value less costs to sell estimated at the point of harvest. A gain or loss

arising from the initial recognition of agricultural produce at fair value less costs to sell is included in the Consolidated Statement of Profit or Loss.

Biological assets for which quoted market prices are not available are measured using the present value of expected net cash flows from the sale

of an asset discounted at a current market-determined rate. The objective of a calculation of the present value of expected net cash flows is to

determine the fair value of a biological asset in its present location and condition.

Cost of agricultural preparation of fields before seeding is recorded as work-in-progress in inventories. After seeding, the cost of field preparation

is recognized as biological assets held at fair value less costs to sell.

The Group classifies biological assets as current or non-current depending upon the average useful life of the particular group of biological assets.

All of the Group’s biological assets except non-current cattle were classified as current, as their average useful life is less than one year.

Property, Plant, and Equipment

Buildings, constructions, production machinery and equipment (Oilseed Processing segment) are accounted for at revalued amounts, being the

fair value, which is determined using external professional expert evaluation. Revaluations are performed with sufficient regularity such that the

carrying amount does not differ materially from that which would be determined using fair values at the reporting date. Any accumulated depreci-

ation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount

of the asset.

If the asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to other comprehensive income and accu-

mulated in revaluation reserve in equity. However, such an increase is recognized in the Consolidated Statement of Profit or Loss to the extent

that it reverses a impairment of the same asset previously recognized in the Consolidated Statement of Profit or Loss. If the asset’s carrying amount

is decreased as a result of a revaluation, the decrease is recognized in the Consolidated Statement of Profit or Loss. However, such a decrease

is debited directly to the Other Comprehensive Income or Loss to the extent of any credit balance existing in the revaluation surplus with respect

to that asset.

Depreciation on revalued assets is charged to the Consolidated Statement of Profit or Loss. On the subsequent sale or retirement of revalued

assets, the revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. No transfer is made from the

revaluation reserve to retained earnings except when an asset is derecognized. Property, plant and equipment are depreciated over the estimated

useful economic lives of assets under the straight-line method.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Useful lives of property, plant, and equipment are as follows:

Buildings and constructions

20 - 50 years

Production machinery and equipment

10 - 20 years

Agricultural equipment and vehicles

3 - 10 years

Other fixed assets

5 - 20 years

Construction in progress (CIP) and uninstalled equipment

not depreciated

Except for land, building and constructions and production machinery and equipment of Oilseed Processing segment, all other property, plant and

equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. Land is carried at cost less accumulated

impairment losses and is not depreciated.

Capitalized costs include major expenditures for improvements and replacements that extend the useful lives of assets or increase their revenue-

generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalization are presented the Consolidated

Statement of Profit or Loss as incurred.

Construction in progress consists of costs directly related to the construction of property, plant and equipment including an appropriate allocation

of directly attributable variable overhead incurred during construction. Depreciation of these assets commences when the assets are put into

operation.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the

continued use of the asset. Any gain or loss arising from the disposal or retirement of an item of property, plant and equipment is determined as

the difference between the sales proceeds and the carrying amount of the asset and is recognized in the Consolidated Statement of Profit or Loss.

Leases

The Group assesses whether a contract is, or contains, a lease at the inception of the contract. The Group recognizes right-of-use assets and

corresponding lease liabilities with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with

a lease term of 12 months or less).

For the short-term leases, the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease

unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by

using the incremental borrowing rate. Incremental borrowing rate is determined as reference interest rates which were derived from the yields of

corporate bonds in the currency similar to the lease contracts, for a period up to 10 years.

Lease payments included in the measurement of the lease liability comprise:

• Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable:

• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

• The amount expected to be payable by the lessee under residual value guarantees;

• The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and

• Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

• The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the

case for leases of the Group, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the

funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, collateral and

conditions.

• To determine the incremental borrowing rate, the Group:

− where possible, uses recent third-party financing received by the Group as a starting point, adjusted to reflect changes in financing conditions

since third party financing was received,

− uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk, and

− makes adjustments specific to the lease, e.g., term, country, currency and collateral

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

• The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a

purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which

cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments

change is due to a change in a floating interest rate, in which case a revised discount rate is used).

• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured

based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of

the modification.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement

day, any lease incentives received and any initial direct costs. Right-of-use assets are depreciated on a straight-line basis from the commencement

date of the lease.

The commencement date is the date on which a lessor makes an underlying asset available for use by a lessee.

The right-of-use assets and lease liabilities are presented as separate lines in the consolidated statement of financial position.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Finance costs, which represent the difference between the total lease payments included in the measurement of the lease liability and the initial

amount of the lease liability, are charged to profit or loss over the term of the relevant lease so as to produce a constant periodic rate of charge on

the remaining balance of the obligations for each accounting period.

Intangible Assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated depreciation and accumulated impairment

losses. Amortization is primarily recognized within “Cost of Sales” on a straight-line basis over their estimated useful lives. The amortization method

and estimated useful life are reviewed annually with the effect of any changes in estimate being accounted for on a prospective basis. Intangible

assets with indefinite useful lives that are acquired separately shall not be amortized and are carried at cost less accumulated impairment loss.

Trademarks

The ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’ are separately acquired trademarks that have indefinite useful lives and are not amortized

but tested for impairment by comparing their recoverable amount with their carrying amount annually on 30 June and whenever there is an indica-

tion that the trademarks may be impaired.

Crypto Assets

The Group owned crypto assets which meet the definition of an intangible asset in accordance with IAS 38 Intangible Assets. The following inherent

characteristics were considered to classify crypto assets as intangible assets:

• Assets are identifiable

• Assets have a lack of physical substance,

• Groups has control over the resource; and

• Future economic benefits exist.

The crypto assets are carried initially at cost comprised of purchase price and transaction costs. The Group considers that the crypto assets do

not have a foreseeable limit to the period over which it is expected to generate net cash inflows for the Group, as a result no amortization is

required. The Group applies the cost model: crypto assets are measured at cost on initial recognition and are subsequently measured at cost less

impairment losses, if any.

Land Lease Rights

Land lease rights acquired in a business combination are recognized separately from goodwill at their fair value at the acquisition date (which is

subsequently regarded as their cost).

Amortization of land lease rights is calculated on a straight-line basis during the term of a lease contract. For land lease rights acquired in business

combination, the amortization period varies from 1 to 22 years.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and

accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising

from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset,

are recognized in the Consolidated Statement of Profit or Loss when the asset is derecognized.

Impairment of tangible and intangible assets, except Goodwill

At each reporting date, the Group reviews the carrying amounts of the Group’s non-current assets to determine whether there is any indication

that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to

determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group

estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows

are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks

specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset

(or cash-generating unit) is reduced to its recoverable amount. Cash generating unit represents the lowest level within the Group at which the

goodwill is monitored by management and which are not larger than a segment. An impairment loss is recognized immediately in the Consolidated

Statement of Profit or Loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation

decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate

of its recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined

had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized

immediately in the Consolidated Statement of Profit or Loss, unless the relevant asset is carried at a revalued amount, in which case the reversal

of the impairment loss is treated as a revaluation increase.

Cash and cash equivalents.

Cash and cash equivalents include cash in hand, deposits held with banks with original maturities of three months or less. Cash and cash equiva-

lents are carried at amortized cost because: (i) they are held for collection of contractual cash flows and those cash flows represent SPPI, and (ii)

they are not designated at FVTPL. Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated statement

of cash flows

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial Instruments

Financial asset and financial liability are recognized in the Group’s Consolidated Statement of Financial Position when, and only when, the Group

entity becomes a party to the contractual provisions of the instrument.

Financial assets are classified to the following categories financial assets at amortized cost, at fair value through other comprehensive income

(FVTOCI) or at fair value through profit or loss (FVTPL). The classification depends on the business model and contractual cash flow characteristics

of the financial assets or financial liabilities and is determined at the time of initial recognition.

The Group does not have financial instruments carried at FVTOCI. The Group measures derivative instruments and investments made in equity

instruments at FVTPL, all other financial instruments are measured at amortized cost.

Financial assets and financial liabilities are initially measured at fair value, except for trade receivables and trade payables that do not have a

significant financing component which are measured at transaction price. All recognized financial assets are measured subsequently in their en-

tirety at either amortized cost or fair value, depending on the classification of the financial assets. All financial liabilities are measured subsequently

at amortized cost using the effective interest method or at FVTPL. Transaction costs that are directly attributable to the acquisition or issue of

financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted

from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the

acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Amortized cost and effective interest method

The Group measures financial assets at amortized cost if both of the following conditions are met:

• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the

principal amount outstanding

Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses

are recognized in profit or loss when the asset is derecognized, modified or impaired.

The effective interest method calculates the amortized cost of a debt instrument and allocates interest income over the relevant period. The effective

interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral

part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where

appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at fair value through

profit or loss. The effect of initial recognition of financial assets and liabilities obtained/incurred at terms below the market is recognized net of the

tax effect as an income or expense, except for financial assets and liabilities with shareholders or entities under control of the Beneficial Owner,

whereby the effect is recognized through equity.

Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL. Specifically:

• Investments in equity instruments are classified as at FVTPL, unless the Group designates an equity investment that is neither held for trading

nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition;

• Debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria are classified as at FVTPL. In addition, debt instruments

that meet either the amortized cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation

eliminates or significantly reduces a measurement or recognition inconsistency (so called ‘accounting mismatch’) that would arise from measur-

ing assets or liabilities or recognizing the gains and losses on them on different bases. The Group has not designated any debt instruments as

at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit

or loss to the extent they are not part of a designated hedging relationship. The net gain or loss recognized in profit or loss includes any dividend

or interest earned on the financial asset.

Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial

asset and all the risks and rewards to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership

and continues to control the transferred asset, the Group recognizes its retained interest in the asset and associated liability for amounts it may

have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to

recognize the financial asset and also recognizes collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received

and receivable is recognized in the Consolidated Statement of Profit or Loss.

On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset or

retains a residual interest that does not result in the retention of substantially all the risks and rewards of ownership and the Group retains control),

the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement,

and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the

carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and

any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in the Consolidated Statement

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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of Profit or Loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues

to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

Impairment of financial assets

The Group recognizes a loss allowance for expected credit losses (ECL) on a financial asset, other than those at FVTPL, at the end of each

reporting period. The amount of ECL and other current assets is updated at each reporting date to reflect changes in credit risk since initial

recognition of the respective financial instrument.

The Group applies a simplified approach permitted by IFRS to measuring ECL which uses a lifetime expected loss allowance for trade receivables.

The ECL on trade receivables and other current assets is estimated using a provision matrix, based on historical credit loss experience and credit

rating of customers, adjusted on observable and reasonable information.

Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument.

In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are

possible within 12 months after the reporting date.

The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic

prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade

accounts receivable, when the amounts are over three years past due, whichever occurs sooner. Financial assets written off may still be subject

to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are

recognized in profit or loss.

Definition of default

The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates

that financial assets that meet either of the following criteria are generally not recoverable:

• when there is a breach of financial covenants by the debtor; or

• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group,

in full (without taking into account any collateral held by the Group).

Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 90 days past due unless the

Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Financial liabilities measured subsequently at amortized cost

Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held‑for‑trading, or (iii) designated as at

FVTPL, are measured subsequently at amortized cost using the effective interest method.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination,

(ii) held for trading or (iii) it is designated as at FVTPL.

A financial liability is classified as held for trading if:

• it has been acquired principally for the purpose of repurchasing it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of

short‑term profit‑taking; or

• it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.

A financial liability other than a financial liability held for trading or contingent consideration of an acquirer in a business combination may be

designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated

on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping

is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and IFRS 9 permits the entire combined contract to be designated as

at FVTPL.

Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognized in profit or loss to the

extent that they are not part of a designated hedging relationship. The net gain or loss recognized in profit or loss incorporates any interest paid

on the financial liability.

However, for financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable

to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the

liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The remaining amount of

change in the fair value of liability is recognized in profit or loss. Changes in fair value attributable to a financial liability’s credit risk that are

recognized in other comprehensive income are not subsequently reclassified to profit or loss; instead, they are transferred to retained earnings

upon derecognition of the financial liability.

Derecognition of financial liabilities

The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference

between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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When the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms, such exchange is

accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for

substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a

new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including

any fees paid net of any fees received and discounted using the original effective rate is at least 10 per cent different from the discounted present

value of the remaining cash flows of the original financial liability. If the modification is not substantial, the difference between:

(1) the carrying amount of the liability before the modification; and

(2) the present value of the cash flows after modification should be recognized in the statement profit or loss as the modification gain or loss

within other operating income and expenses.

Commodity derivatives

The Group enters into variety of derivative financial instruments including futures, options and physical contracts to buy or sell commodities, which

do not meet the own use exemption. These derivatives are initially recognized at fair value at the date the derivative contracts are entered into and

are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized immediately in the

profit or loss within Cost of sales (for the derivative purchase contracts) or Revenue (for settled forward sales contracts) unless the derivative is

designated and effective hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the hedge

relationship. Fair values are determined using quoted market prices, broker quotations or using models and other valuation techniques.

A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial

liability.

Other financial assets include margin accounts that are represented by variation margin and initial margin held in respect of open exchange-traded

futures and forwards contracts. Margin accounts are measured at amortized cost.

For the financial assets and liabilities subject to enforceable master netting or similar arrangements above, each agreement between the Group

and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis (Note 37). In

the absence of such an election, financial assets and liabilities may be settled on a gross basis, however, each party to the master netting or similar

agreement will have the option to settle all such amounts on a net basis in the event of default of the other party. Per the terms of each agreement,

an event of default includes failure by a party to make payment when due, failure by a party to perform any obligation required by the agreement

(other than payment) if such failure is not remedied within periods of 30 to 60 days after notice of such failure is given to the party or bankruptcy.

Derivatives and hedging activities

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair

value at each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effec-

tive as a hedging instrument. Derivatives expected to be settled within a year after the end of the reporting period are classified as current liabili-

ties or current assets

The Group utilizes derivatives to hedge market risk exposures related to commodity price movements in relation to its sales. Those derivatives

qualifying and designated as cash flow hedge of the exposure to variability in cash flows that is attributable to a risk or a highly probable forecast

sale transaction. The gains and losses, the effective portion of changes in the fair value of derivatives is recognized in the cash flow hedging

reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the hedge

and recycled to profit or loss as the hedged transaction occurs. Amounts deferred in equity are transferred to the statement of profit or loss and

classified as income or expense in the same periods during which the cash flows, such as hedged highly probable sales, affect the statement of

profit or loss. Derivatives that do not qualify for hedge accounting have a gain or loss recognized in the income statement at the time of the

transaction.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to

ensure that an economic relationship exists between the hedged item and hedging instrument. The effective portion of changes in the fair value of

derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive

income and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from

inception of the hedge. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss and is included in the Revenue

line.

When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative

deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs. When the forecast

transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately

reclassified to profit or loss.

The risk management objective is to hedge commodity price risk exposure arising from the changes in sunflower oil market price. In order to comply

with its risk management strategy, the Group enters into sunflower oil commodity sales agreements with counterparties matching the highly prob-

able forecasted sale quantity per time bucket in the end destination to hedge the identified commodity price exposure for its future sales at end

destination. There is an economic relationship between the hedged items and the hedging instruments as the designated hedged items and

hedging instruments’ quantities and timing of the cash flows is matching and there is high correlation in movement of prices for hedged item and

hedging instrument. The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the commodity forward

contracts are identical to the hedged risk components. To quantify the hedge ineffectiveness, the Group uses the hypothetical derivative method

and compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the

hedged risks.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Taxes Recoverable and Prepaid

Taxes recoverable and prepaid are stated at their nominal value and reduced by appropriate allowances for estimated irrecoverable amounts.

Share-based payments

Equity-settled share-based payments with employees are measured by reference to the fair value at the grant date and are recognized as an

expense over the vesting period, which ends on the date the relevant employees become fully entitled to the award.

Fair value is calculated using the Monte Carlo Simulation model. No expense is recognized for awards that do not ultimately vest.

At each reporting date before vesting, the cumulative expense is calculated representing the extent to which the vesting period has expired and

management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments that will ultimately

vest. The movement in cumulative expense since the previous reporting date is recognized in the Consolidated Statement of Profit or Loss, with a

corresponding entry in equity.

For cash-settled share-based payments, a liability is recognized for the goods or services acquired, measured initially at the fair value of the liability.

At each reporting date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair

value recognized in profit or loss for the year.

Treasury shares

Own equity instruments held by the Group (‘treasury shares') shall be deducted from equity. No gain or loss shall be recognized in profit or loss

on the purchase, sale, issue, or cancellation of the Group’s own equity instruments. These treasury shares may be acquired and held by the

entity or by other members of the Group. Any difference between the carrying amount and the consideration, if reissued, will be recognized in the

share premium reserve.

Provisions

A provision is recognized in the Consolidated Statement of Financial Position when the Group has a legal or constructive obligation as a result of

a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the obligation

amount can be made. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at

the reporting date, considering the risks and uncertainties surrounding the obligation.

Revenue recognition

Revenue is derived principally from the sale of goods and finished products, farming and rendering services. Revenue from contracts with custom-

ers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the

Group expects to be entitled in exchange for those goods or services.

The point of revenue recognition for sale of commodity goods is dependent upon contract sales terms (Incoterms). When goods are sold on a Cost

and freight (CFR) or Cost, insurance, and freight (CIF) basis, the Group is responsible for providing services such as carriage and freight to the

customer. The Group recognizes revenue from each separate performance obligation and allocates part of the transaction price to carriage and

freight services incorporated in some contracts that the Group undertakes to perform. The Group allocates the transaction price based on the

relative stand-alone selling prices of the commodities and supporting services. The revenue from these carriage and fright services is recognized

over time.

A receivable is recognized by the Group when the control over goods is transferred to the wholesaler as this represents the point of time at which

the right to consideration becomes unconditional, as only the passage of time is required before payment is due. Timing of billing is generally close

to the timing of performance obligation satisfaction, respectively, amount of contract assets and contract liabilities is not material. When the Group

obtains a contract from a customer, the Group enters into a contract with one of those service providers, directing the service provider to render

freight and other services for the customer. The Group is obliged to pay the service provider even if the customer fails to pay.

Rendering of Services

Revenue is recognized over time for services provided by the Group. The main type of services provided by the Group a crop cleaning, drying and

storage services by the Group’s silos. Revenue from grain cleaning, drying and storage services is recognized on an accrual basis, based on the

fees for the specific service, volumes of crops under service and days of storage.

Employee benefits

Wages, salaries, contributions to the pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits

are accrued in the year in which the associated services are rendered by the employees of the Group. The Group recognizes a liability and an

expense for short-term bonuses and other short-term profit sharing arrangements when the reporting entity has a present legal or constructive

obligation to make payments as a result of past events and a reliable estimate can be made of the amount payable.

Share based options

The Group recognizes a compound financial instrument if an entity has granted the counterparty the right to choose whether a share-based

payment transaction is settled in cash or by issuing equity instruments, which includes a debt component (i.e. the counterparty’s right to demand

payment in cash) and an equity component (i.e. the counterparty’s right to demand settlement in equity instruments rather than in cash). The Group

measures the debt component of the compound financial instrument first, and then measures the fair value of the equity component—taking into

account that the counterparty must forfeit the right to receive cash in order to receive the equity instrument. The fair value of the compound financial

instrument is determined as the sum of the fair values of the two components.

Borrowing Costs

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a

substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are

substantially ready for their intended use or sale.

All other borrowing costs are recognized in the Consolidated Statement of Profit or Loss in the period in which they are incurred.

Taxation

Income taxes have been provided for in the consolidated financial statements in accordance with legislation currently enacted in the legal jurisdic-

tions where the operating entities are located. Income tax expense represents the sum of the tax currently payable and deferred tax expense.

Current and deferred tax for the year

Current and deferred tax are recognized in the Consolidated Statement of Profit or Loss, except when they relate to items that are recognized in

other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income

or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is

included in the accounting for the business combination.

Current tax

The current income tax charge is the amount expected to be paid to, or recovered from, taxation authorities with respect to taxable profit or losses

for the current or previous periods. It is calculated using tax rates that have been enacted or substantially enacted by the reporting date in the

countries where the Holding and its Subsidiaries operate and generate taxable income. Taxable profit differs from ‘profit before tax’ because of

items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible taxes other than income

tax are recorded within operating expenses. Some of the Group’s companies that are involved in agricultural production are exempt from income

taxes and pay the Unified Agricultural Tax instead.

Deferred tax

Deferred income tax is recognized on temporary differences arising between the carrying amount of assets and liabilities in the financial statements

and their corresponding tax bases used in the computation of taxable profit. Deferred tax balances are measured at tax rates enacted or substan-

tively enacted at the end of the reporting period that are expected to apply to the period when the temporary differences will reverse, or the tax

loss carried forward will be utilized. Deferred tax assets for deductible temporary differences and tax losses carried forward are recorded only to

the extent that it is probable that future taxable profit will be available against which the deductions can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable

that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax liabilities for taxable temporary differences associated with investments in Subsidiaries and joint ventures are recognized, except

when the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the

foreseeable future. In addition, a deferred tax liability is not recognized if the temporary difference arises from the initial recognition of goodwill.

Deferred tax assets and liabilities are offset when:

• The Group has a legally enforceable right to set off the recognized amounts of current tax assets and current tax liabilities;

• The Group has the intention to settle on a net basis, or to realize the asset and settle the liability simultaneously;

• The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority in each future period in which

significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.

Corrections and reclassifications

Certain corrections have been made to the comparative financial data (i.e. as of 30 June 2021 and for the year then ended) of the consolidated

financial statements as of 30 June 2022 in accordance with IAS 8. In addition, reclassifications were made in the comparatives to conform to the

current year’s presentation and in order to achieve comparability with the presentation used in the consolidated financial statements for the year

ended 30 June 2022 and for the better understanding of users of the financial and non-financial assets and liabilities.

As a result of identified corrections, the Group made changes to the presentation of consolidated statement of financial position as of 30 June 2021

by presenting separately corporate income tax liabilities in the amount of USD 46,504 thousand that was previously presented as Advances from

customers and other current liabilities. Corporate income tax liabilities were USD 11,876 thousand as of 30 June 2020.

Additionally, as a result of reclassifications to conform to the current year’s presentation, the Group made changes to the presentation of consoli-

dated statement of profit and loss as of 30 June 2021 by presenting gains and losses from cash flow hedge results of USD 52,354 thousand in

revenue instead of cost of sales, decreasing both of them for the same amount.

The Group corrected the accounting of profit-sharing arrangements which directors, being also non-controlling shareholders of the Group’s sub-

sidiary Avere Commodities SA, were entitled to. Previously, as at 30 June 2021 and 31 December 2021 the Group recognized non-controlling

interest in the amount of USD 136,558 thousand and USD 146,294 thousand respectively as part of Total equity on the face of consolidated

statement of financial position and presented the share of total comprehensive income for the year ended 30 June 2021 attributable to non-

controlling interest of USD 131,809 thousand. However, based on the arrangements set by shareholders agreement for Avere Commodities SA,

the Group should have presented the amount of USD 136,558 thousand as Other current liabilities and the amount of USD 131,809 thousand ,

being in substance a short term employee benefit expense, as part of General, administrative and selling expenses. Therefore, in these consoli-

dated financial statements the Group corrected the amounts of non-controlling interest in other financial liabilities in the amount of USD 133,802

thousand and provided reassessment of the corresponding liability for the year ended 30 June 2021, recognizing USD 136,867 thousand in the

consolidated statement of profit and loss as General and administrative expenses and remaining USD 3,065 thousand of gain recognized within

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Other comprehensive income. In these consolidated financial statements, the Group did not provide reassessed figures as of 30 June 2020 and

for the year then ended as the effect is immaterial.

5. Critical Accounting Judgments and Key Sources of Estimation Uncertainty

The application of IFRS requires the use of reasonable judgments, assumptions and estimates. These estimates and assumptions affect the

reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements.

The estimates are based on the information available as of the reporting date. Actual results could differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in

which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both

current and future periods.

Critical Judgments in Applying Accounting Policies

The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying

the Group’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.

Revenue Recognition

In the normal course of business, the Group engages in sale and purchase transactions for the purpose of exchanging grain in various locations

to fulfill the Group’s production and trading requirements. In accordance with the Group’s accounting policy, revenue is not recognized with respect

to the exchange transactions involving goods of a similar nature and value. The Group’s management applies judgment to determine whether each

particular transaction represents an exchange or a transaction that generates revenue. In making this judgment, management considers whether

the underlying commodity is of similar type and quality, as well as whether the time passed between the transfer and receipt of the underlying

commodity indicates that the substance of the transaction is an exchange of similar goods. The amount of exchange transactions involving goods

of a similar nature amounted to USD 54,592 thousand and USD 40,010 thousand for the years ended 30 June 2022 and 2021, respectively.

Revaluation of Property, Plant and Equipment

The Group recognizes classes of buildings, constructions, production machinery and equipment used in the Oilseed Processing segment at fair

value, which is valued by external independent valuers, at least triennially or more often, depending on the external and internal factors. A revalu-

ation surplus is credited to Revaluation reserve within equity. All other classes of property, plant and equipment are recognized at historical cost

less depreciation.

Valuation is conducted in accordance with International Valuation Standards and International Financial Reporting Standard 13 “Fair Value Meas-

urement”. While performing valuation the following techniques were used:

• Cost approach (depreciated replacement cost);

• Market approach (comparable analysis);

• Income approach (discounted cash flow models).

Using these methods, the following key estimates and judgments were applied by the independent valuers, in discussion with the Group’s internal

valuation team and technicians:

• Physical, functional and economic depreciation;

• Liquidation amount;

• Market price for comparable assets.

Key assumptions used in depreciated replacement cost and market approach as well as their sensitivities are outlined as follows:

Description

Fair value as of

30 June 2022

Value

techniques

Fair value

hierarchy

Unobservable

inputs

Range of

unobservable inputs

(average)

Relationship of

unobservable inputs to fair

value

Buildings and

constructions

278,241

Depreciated re-

placement cost

Level 3

Index of

physical de-

preciation

0 - 80% (38%)

The higher the index of

physical depreciation, the

lower the fair value

Production machinery

and equipment

139,424

Depreciated re-

placement cost

Level 3

Index of

physical de-

preciation

0 - 82 (69%)

The higher the index of

physical depreciation, the

lower the fair value

Production machinery

and equipment

1,500

Market com-

parables

Level 3

Index of

physical de-

preciation

0 - 82 (66%)

The higher the index of

physical depreciation, the

lower the fair value

If the above unobservable inputs to the valuation model were 5 p. p. higher/lower while all other variables were held constant, the carrying amount

of the buildings and constructions and production machinery and equipment would decrease/increase by USD 28,141 thousand and USD 32,179

thousand, respectively.

The results of revaluation using the depreciated replacement cost and market approach were then compared with results of income approach

(Level 3 of unobservable inputs) for corresponding assets to test whether impairment exists.

To capture the increased risk and uncertainty in the cash flows, management used probability-based discounted cash flow scenarios, which,

according to their opinion, better estimates the recoverable amount of the asset or cash-generating unit than a single predicted outcome.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The Group used three probability-weighted scenarios, derived mostly from the date of Ukrainian Black Sea ports operation at full capacity, which

influenced the main assumptions used in value in use calculation, like: prices for its goods, transportation costs and working capital. Probability of

scenarios was calculated based on three-point estimation technique.

Scenario

Assumption

Probability

Basic

Ukrainian Black Sea ports operation at full capacity in the financial year 2024

66.66%

Optimistic

Ukrainian Black Sea ports operation at full capacity in the financial year 2023

16.67%

Pessimistic

Ukrainian Black Sea ports operation at full capaсity in the financial year 2025

16.67%

Depending on the year when ports start operation at full capacity, the combination of logistic routes significantly varies, impacting transportation

costs per unit of production and distance to the point of sale. The change in transportation costs directly affects selling prices for goods in each

scenario. Working capital ratio changes by scenario as it is linked to the volume of sales and related balance of inventory at the end of each year.

While calculating the discount rate, the Group incorporated the risks associated with the Russian invasion in scenarios of cash flows, hence such

components of discount rate, as country risk and debt risk were taken at the pre-war level. Discount rate is disclosed in Note 16. Should the Group

take these factors at the post-war levels, the discount rate would have been 24%.

Cash flow forecasts used in the income approach were based on financial budgets approved by management covering a five-year period. Cash

flows beyond the five-year period were extrapolated using the estimated growth rates.

Other key assumptions used in the discounted cash flow forecasts and their sensitivities are disclosed in Note 16.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimating uncertainty at the end of the reporting period,

that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Impairment Testing of Property, Plant and Equipment

The Group performs impairment testing of non-financial assets whenever there is an indicator those assets might be impaired.

Full-scale Russian invasion of Ukraine in February 2022 caused the following events which might indicate impairment:

• temporarily ceasing operations;

• breaches of supply/purchase contracts;

• limitation of market for product delivery; and

• decline in profitability and physical damage as a result of the invasion.

As a result of the above-mentioned triggering events, the Group tested non-financial assets for recoverability by comparing the net carrying value

of the assets and their recoverable amount (higher of their value in use or fair value less cost to sell).

The Group performed the impairment test at CGU level, for all CGUs of all segments, covering property, plant and equipment, intangible assets,

right of use assets and goodwill. Recoverable amount of each CGU was determined based on the higher amount of value-in-use and fair value

less costs to sell. In a case of impairment, the Group firstly allocates impairment to goodwill, then other intangible assets, property, plant and

equipment and rights of use the assets.

In making the assessment for impairment, assets that do not generate independent cash flows are allocated to an appropriate cash-generating

unit.

The value in use is based on estimated future cash flows that are discounted to their present value applying the appropriate discount rate. Estimated

future cash flows require management to make a number of assumptions including (but not limited to) production volumes, prices for goods, lease

and transshipment rates and future growth rates. Cash flow forecasts used in the value in use approach were based on financial budgets approved

by management covering a five-year period and extrapolated using the estimated growth rates for periods over 5 years.

Management used probability-based future cash flows scenarios as disclosed in section “Revaluation of Property, Plant and Equipment” in this

Note. Key assumptions and their sensitivities are disclosed in Note 16.

Impairment of Right of Use Assets

The Group allocated the right of use assets to a cash generating unit, for impairment test within the respective CGU. Majority of the Group’s right

of use assets relate to leasehold land for agricultural purposes, being part of the Farming segment. To deter-mine value in use of the respective

CGU the Group excluded the lease liabilities from the carrying amount of the CGU and cash outflows from lease payments because it is financing

activity. The cash outflows to replace leased assets which are essential to the ongoing operation of the CGU were included in the impairment test.

Further, while allocating impairment, the Group estimated fair value less cost to sell of the right of use assets.

Management used the following key assumptions for impairment test of right of use assets:

• the average residual term of the lease contract of 11 years;

• discount rate being incremental borrowing rate of 26.6%; and

• lease rate in the amount of USD 221 for 1 ha of the leased land annually.

Impairment testing within the Farming segment for the year ended 30 June 2022 has not identified right of use assets being impaired. The

impairment model was not identified as being sensitive to reasonably possible changes in key assumptions.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Impairment Testing of Goodwill and Intangible Assets with Indefinite Useful Lives

The Group assesses cash-generated units (CGU), for impairment whenever events or changes circumstances indicate that the carrying amount

of assets or CGU may be impaired. Individual assets are grouped into CGU for representing the lowest level within the entity at which the goodwill

is monitored by management.

Determining whether goodwill is impaired requires an estimation of the value in use or fair value less costs to sell of the cash-generating units to

which goodwill has been allocated. Where the carrying amount of a CGU exceeds its recoverable, The CGU is considered impaired and is written

down to its recoverable amount. The calculation of value in use requires management to estimate the future cash flows expected to arise from the

cash-generating unit and a suitable discount rate in order to calculate their present value.

Details of the management assumptions used to assess the recoverable amount of cash-generating units for which goodwill and intangible assets

with indefinite useful lives have been allocated to are provided in Notes 16, 18 and 18.

Functional currencies of different entities of the Group

Different entities within the Group have different functional currencies, based on the underlying economic conditions of their operations. This

determination, of what the specific underlying economic conditions are, requires judgement. In making this judgement, the Group evaluates among

other factors, the location of activities, the sources of revenue and risks associated with activities, denomination of currencies of operations of

different entities and degree of independence of subsidiaries’ business model. Specifically, in determination of the functional currencies of Kernel

Trade LLC, the Group based its judgement on the fact that the company operates internationally on the markets mainly influenced by the US Dollar

(not Ukrainian Hryvnia) and its major activities include the sale of goods to foreign customers. Moreover, the majority of its operations are denom-

inated in US Dollars and also, the US Dollar is the currency in which their business risks and exposures are managed, and the performance of

their business is measured. In determining the functional currency of the oil-processing plants and transshipment terminals, the Group based its

judgement on the degree of independence of those companies’ business model of Kernel Trade LLC.

Crypto assets

The Group’s cryptocurrency assets are recognized as intangible assets carried at cost less impairment, if any. Assessment of impairment is a key

source of estimation due to volatility of prices in the market. The Group performs an analysis each quarter to identify if events or changes in

circumstances, such as decreases in quoted prices on active exchanges indicated that it is more likely than not that any of the assets is impaired.

In determining if an impairment has occurred, the Group considers the lowest market price of one unit of digital asset quoted on the active exchange

since acquiring the digital asset. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has

occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.

Net realizable value of inventory

Due to absence of reliable observable inputs in terms of prices for inventory as at 30 June 2022 the Group analyzed alternative sources of the

information such as data obtained from independent broker agencies and market data and considered cost of different ways of alternative export

routes given the Ukrainian Black Sea ports did not operate normally as at 30 June 2022 and until the issue of these consolidated financial state-

ments. As the result, the Group recognized USD 98,229 thousand to decrease the cost of certain inventories to their net realizable value. The

decrease in price by 10% will lead to a decrease in inventory balance by USD 105,995 thousand, while the increase in transportation costs by 10%

will lead to a reduction in inventory balance by USD 32,052 thousand.

Disposal group held for sale and discontinued operations

In 2022, the Group entered into a legally binding agreement on divestment of part of its assets and directly associated liabilities (disposal group).

Management classified divesting disposal group as held for sale since its carrying amount will be recovered principally through a sale transaction

rather than through continuing use:

• It is ready for immediate sale in its present condition and its sale is highly probable;

• Sale price is reasonable in relation to its current fair value (according to the independent appraiser’s report fair value of the disposal group is

close to the sale price).

At the same time operations performed by the disposal group weren’t classified by Management as discontinued since:

• The disposal group doesn’t represent a separate major line of business or geographical area of operations (it’s only a part of a separate segment,

located in geographical area, where other assets of the Group are presented as well);

• It’s not a subsidiary acquired with a view to resale (the disposal group was acquired about ten years ago as a part of business which is active

and still under the control of the Group);

Valuation of the assets held for sale was performed by the independent valuer based on discounted cash flow model. For the valuation purposes,

management used three probability-weighted scenarios, as disclosed in section “Revaluation of Property, Plant and Equipment” in this Note 16.

Key assumptions used in the valuation and their sensitivities are disclosed in Note 15.

Fair Value of Biological Assets and Agricultural Produce

Biological assets are recorded at fair value less costs to sell. The fair value of growing crops is determined using a discounted cash flow model

based on the expected crops’ yield by sowing area size, the market price for respective crops, and after allowing for harvesting costs, contributory

asset charges for the land and sowing areas and other costs yet to be incurred in getting the harvest to maturity.

The Group estimates the fair values of biological assets and agricultural produce based on the following key assumptions:

• Expected crop yields (for crops in fields);

• Expected future inflows from livestock;

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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• Average weight and quality of animals;

• Productive life of one milk cow;

• Estimated future sales prices;

• Projected production costs and costs to sell; and

• Discount rate.

Although some of these assumptions are obtained from published market data, a majority of these assumptions are estimated based on the Group’s

historical and projected results (Note 13).

Fair value measurements

Derivative instruments are carried at fair value for which the Group evaluates the quality and reliability of the assumptions and data used to measure

fair value in the three hierarchy levels, Level 1, 2 and 3, as prescribed by IFRS 13 Fair Value Measurement. Fair values are determined in the

following ways: externally verified via comparison to quoted market prices in active markets (Level 1); by using models with externally verifiable

inputs (Level 2); or by using alternative procedures such as comparison to comparable instruments and/or using models with unobservable market

inputs requiring Group to make market-based assumptions (Level 3). Level 3 inputs therefore include the highest level of estimation uncertainty.

Details of the management’s estimates are presented in Note 37 of this consolidated financial statement.

6. Operating Segments

Operating segments are reported in a manner consistent with the internal reporting as provided to the chief operating decision makers in order to

allocate resources to the segment and to assess its performance. The executive management who are members of the board of directors of the

Company are identified as chief operating decision makers.

Segments in the consolidated financial statements are defined in accordance with the type of activity, products sold or services provided. Segmen-

tation presented in these consolidated financial statements is consistent with the structure of financial information regularly reviewed by the Group’s

management, including Chief Executive Officer. Operating segments’ performance is assessed based on a measure of EBITDA.

The Group is presenting its segment results within three operating segments: Oilseed Processing, Infrastructure and Trading, and Farming.

In Oilseed Processing segment, the Group combines oilseed origination, edible oil production and sales of bottled sunflower oil. Sunflower oil in

bulk is mostly sold further to the Infrastructure and Trading segment for the global marketing.

In Infrastructure and Trading segment, the Group combines results of grain trading, silo services and export terminals operations. These parts of

the business form an integrated supply chain which is managed jointly. Under current framework, the management considers export terminals and

grain storage facilities as production assets which serve grain merchandizing business and consequently uses a combined throughput margin to

evaluate performance of Infrastructure and Trading business. In FY2022, 100% of the Group’s export terminals capacity and majority of grain

storage capacity were used for the Group’s own export volumes. The results of the Infrastructure and Trading segment incorporate savings

achieved by acquiring and employing the Company’s own railcar park. Also, the Infrastructure and Trading segment include the results of the Avere

Commodities S.A. and its subsidiaries (hereinafter, Avere).

In Farming segment, the Group reports results of its crop production business, which includes growing of corn, wheat, soybean, sunflower seed

and rapeseed on the leasehold land, as well as some minor crops and small cattle farming operations.

Presentation of the operating segments’ activities is as follows:

Operating segments

Activities

Oilseed Processing

Sunflower seed origination and sunflower oil production. Sales of bottled and bulk sunflower oil.

Infrastructure and Trading

Sourcing and merchandising of wholesale edible oils, grain, provision of silo services, grain handling and trans-

shipment services.

Farming

Agricultural farming. Production of corn, wheat, soybean, sunflower seed and rapeseed.

Income and expenses unallocated to any segment, which are related to the administration of the Group, were included in the ‘Other’ column.

The measures of profit and loss, and assets and liabilities are based on the Group accounting policies, which are in compliance with IFRS, as

adopted by the European Union.

Reconciliation eliminates intersegment items. The segment data is calculated as follows:

• Intersegment sales reflect intergroup transactions effected on an arm’s length basis.

• Capital expenditures, amortization and depreciation related to property, plant and equipment and intangible assets are allocated to segments

when possible.

The “Other” column reflects income and expenses not allocated to segments.

Since financial management of the Group’s companies is carried out centrally, borrowings, bonds, deferred taxes and some other assets and

liabilities are not allocated directly to the respective operating segments and are presented in the ‘Other’ column. Consequently, the assets and

liabilities shown for individual segments do not include borrowings, bonds, deferred taxes and some other assets and liabilities.

Seasonality of operations

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The Oilseed Processing segment normally has seasonally lower sales in the first quarter of the financial year, which corresponds to the end of the

crushing season and lower production levels. The operations of the Farming segment reflect seasonality in the context of seeding and harvesting

campaigns, which are conducted mainly in November-May and June-November, respectively. The Infrastructure and Trading segment usually

experiences somewhat higher volumes in the several months after the commencement of the harvesting campaign (July for early grains and

September for crops harvested in autumn). In addition, the farming segment usually reflects a higher effect from the IAS 41 valuation of biological

assets in the last quarter of the financial year when more acreage is revalued to fair value less costs to sell and a higher effect from the IAS 41

valuation of agricultural produce in the first half of the financial year due to the completion of the harvesting campaign.

7. Key Data by Operating Segment

Key data by operating segment for the year ended 30 June 2022:

Oilseed

Processing

Infrastruc-

ture and

Trading

Farming

Other

Reconcilia-

tion

Total

Revenue (external)

862,114

4,428,749

40,682

—

5,331,545

Intersegment sales

818,890

105,857

594,541

—

(1,519,288)

—

Total revenue

1,681,004

4,534,606

635,223

(1,519,288)

5,331,545

Net change in fair value of biological assets and agricultural produce

—

12,537

—

12,537

Cost of sales

(1,642,200)

(4,222,311)

(344,412)

(2,338)

1,519,288

(4,691,973)

Other operating income

14,870

41,592

6,833

399

—

63,694

Other operating expenses

—

(44,710)

—

(44,710)

General, administrative and selling expenses

(16,356)

(142,010)

(28,294)

(43,745)

—

(230,405)

Net impairment losses on financial assets

2,826

10,391

(3,666)

(42,544)

—

(32,993)

Loss on impairment of assets

(141,812)

(9,107)

(131,007)

(35,102)

—

(317,028)

Profit/(Loss) from operating activities

(101,668)

213,161

147,214

(168,040)

—

90,667

Amortization and depreciation

31,384

23,593

72,192

2,507

—

129,676

EBITDA

(70,284)

236,754

219,406

(165,533)

—

220,343

Reconciliation:

Finance costs

(130,549)

Finance income

11,322

Foreign exchange gain, net

10,140

Other expenses, net

(25,061)

Income tax benefit

2,781

Loss for the period

(40,700)

Total assets

1,605,543

1,457,637

908,828

213,604

—

4,185,612

Capital expenditures

61,907

23,623

93,907

210,422

—

389,859

Liabilities

63,564

215,734

310,590

1,909,503

—

2,499,391

Key data by operating segment for the year ended 30 June 2021:

Oilseed

Processing

Infrastruc-

ture and

Trading

Farming

Other

Reconcilia-

tion

Total

Revenue (external)

782,940

4,784,961

26,899

—

5,594,800

Intersegment sales

963,998

72,156

630,234

—

(1,666,388)

—

Total revenue

1,746,938

4,857,117

657,133

—

(1,666,388)

5,594,800

Net change in fair value of biological assets and agricultural produce

—

132,631

—

132,631

Cost of sales

(1,704,213)

(4,407,429)

(372,003)

(4,615)

1,666,388

(4,821,872)

Other operating income

2,516

88,281

6,996

13,475

—

111,268

General, administrative and selling expenses

(9,427)

(204,460)

(28,137)

(76,260)

—

(318,284)

Net impairment losses on financial assets

(3,504)

(268)

(934)

—

(4,689)

Loss on impairment of assets

(4,561)

—

(4,561)

Profit/(Loss) from operating activities

27,759

333,241

395,686

(67,383)

—

689,293

Amortization and depreciation

23,424

25,961

65,039

2,062

—

116,486

EBITDA

51,173

359,202

460,725

(65,321)

—

805,779

Reconciliation:

Finance costs

(147,709)

Finance income

5,950

Foreign exchange loss, net

(6,306)

Other expenses, net

(3,254)

Income tax expenses

(32,252)

Profit for the period

505,722

Total assets

1,329,914

1,569,620

1,003,146

93,899

—

3,996,579

Capital expenditures

79,836

47,380

121,567

2,654

—

251,437

Liabilities

37,782

490,709

369,731

1,149,451

—

2,047,673

Revenue from sales of goods and services allocated by operating segment for the year ended 30 June under requirements of IFRS 15 was as

Income, expenses, assets and liabilities unallocated to any segment, included in the ‘Other’ column

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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follows:

For the year ended 30 June 2022

For the year ended 30 June 2021

Oilseed

Processing

Infrastructure

and Trading

Farming

Total

Oilseed

Processing

Infrastructure

and Trading

Farming

Total

Revenue from sales of com-

modities

805,977

4,210,649

40,682

5,057,309

735,771

4,591,757

26,899

5,354,427

Freight and other services

56,137

218,100

—

274,236

47,169

193,204

—

240,373

Total external revenue from

contracts with customers

862,114

4,428,749

40,682

5,331,545

782,940

4,784,961

26,899

5,594,800

Assets held for sale are presented in the Farming segment.

During the year ended 30 June 2022, revenues of approximately USD 470,127 thousand (2021: USD 474,069 thousand) are derived from a single

external customer. These revenues are attributed to Oilseeds processing and Infrastructure and Trading segments. Also, during that period, export

sales amounted to 95.4% of total external sales (2021: 97.0%).

For the year ended 30 June 2022, revenue from the Group’s top five customers accounted for approximately 27.6% of total revenue (for the year

ended 30 June 2021, revenue from the top five customers accounted for 28.1% of total revenue).

Among the other, intersegment sales between Oilseed Processing segment and Infrastructure and Trading segment comprise of sunflower oil

which is marketed by Avere, the activities of which are included in Infrastructure and Trading segment results.

The Group’s revenue from external customers (based on the country of incorporation of the sales counterparty) and information about its segment

assets (non‑current assets excluding non-current financial assets and deferred tax assets) by geographical location are detailed below:

Revenue from external customers

Non-current assets

For the year

ended

30 June 2022

For the year

ended

30 June 2021

As of

30 June 2022

As of

30 June 2021

Asia

2,676,356

2,950,802

Ukraine

1,463,772

1,647,512

of which Singapore

1,002,150

894,786

Switzerland

2,624

3,012

India

672,760

878,482

USA

1,215

471

China

542,556

395,176

Other locations

100,745

440

Europe

2,302,727

1,850,617

of which Switzerland

829,785

748,531

Netherland

405,117

376,919

Other locations

352,462

793,381

Total

5,331,545

5,594,800

Total

1,568,356

1,651,435

None of the other locations represented more than 10% of total revenue or non-current assets individually.

Gain/loss from Avere operations with financial derivatives are presented within Infrastructure and Trading segment.

8. Acquisition and Disposal of Subsidiaries

No entities were acquired or disposed during the year ended 30 June 2022 as well as no entities were acquired during the year ended 30 June

2021.

During the year ended 30 June 2021, as a result of the optimization process of the logistic assets, the Group disposed of four grain elevators

located in Kharkiv, Chernihiv and Mykolayiv regions, one of which was previously classified as assets held for sale. The net assets of the disposed

entities as of the date of disposal were equal to USD 1,100 thousand (including USD 351 thousand classified as assets held for sale) and the cash

consideration received was USD 2,991 thousand (out of which USD 2,505 thousand was received during that reporting period). Gain on disposal

comprised to USD 1,891 thousand.

During the year ended 30 June 2021, settlements for acquired Subsidiaries, which was connected with the acquisition of 560,000 tons oilseed

crushing plant located in Kirovograd region, completed as of 30 June 2016, was repaid in full in the amount of USD 46,898 thousand.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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9. Cash and Cash Equivalents

The balances of cash and cash equivalents were as follows:

As of

30 June 2022

As of

30 June 2021

Cash in banks in USD

404,279

554,493

Cash in banks in UAH

3,403

2,821

Cash in banks in other currencies

39,938

16,717

Cash on hand

Total

447,625

574,040

Less restricted and blocked cash on security bank accounts

(58)

(90)

Less bank overdrafts (Note 23)

(1)

(100)

Cash for the purposes of cash flow statement

447,566

573,850

In accordance with the international rating agency of Fitch, credit ratings of the banks with which the Group had the accounts opened as of

30 June were as follows:

As of

30 June 2022

As of

30 June 2021

International bank with F1 rating

165,512

388,361

International bank with F2 rating

131,362

1,599

Banks without international ratings

73,492

56,961

International bank with F1+ rating

57,364

51,796

Banks with lower medium grade

19,895

75,323

Total

447,625

574,040

As of 30 June 2022, cash deposit in amount of USD 8,000 thousand (30 June 2021: nil) have been pledged as security for short-term borrow-

ings (Note 23).

As of 30 June 2022 and 2021, the identified impairment loss arising on cash and cash equivalents was immaterial.

The reconciliation in the table below presents changes in the Group’s liabilities arising from financing activities by incorporating cash flows and

non-cash changes over the reporting period.

Bank

borrowings,

(Note 23)

Lease

liabilities

(Note 24)

Bonds issued

(Note 25)

Total

As of 1 July 2020

223,855

310,000

815,722

1,349,577

Cash flow from proceeds/ (repayments)

17,868

(77,515)

(69,630)

(129,277)

Transactions costs paid related to corporates bonds issue paid

—

(2,428)

Non-cash movements

Additions and change of terms of lease liabilities

—

70,618

—

70,618

Disposals of lease liabilities

—

(11,293)

—

(11,293)

Non-cash settlement of lease liabilities

—

(7,790)

—

(7,790)

Amortization of one-off and transaction cost (Note 32)

—

17,628

Interest expense accrued (Note 32)

16,548

44,803

60,498

121,849

Interest expense capitalized (Note 16)

5,103

—

5,103

Foreign exchange movements

2,379

315

—

2,694

Other changes

(2,410)

(4,646)

—

(7,056)

As of 30 June 2021

263,343

324,492

821,790

1,409,625

Cash flow from proceeds/ (repayments)

803,232

(51,733)

(269,613)

481,886

Non-cash movements

Additions and change of terms of lease liabilities

—

69,259

—

69,259

Disposals of lease liabilities

—

(8,831)

—

(8,831)

Non-cash settlement of lease liabilities

—

(8,870)

—

(8,870)

Amortization of one-off and transaction cost (Note 32)

—

2,856

Interest expense accrued (Note 32)

34,048

42,074

47,617

123,739

Interest expense capitalized (Note 16)

4,131

—

4,131

Foreign exchange movements

(9,959)

(601)

—

(10,560)

Classified as held for sale (Note 15)

—

(101,922)

—

(101,922)

Other changes

(1,708)

(24,316)

—

(26,024)

As of 30 June 2022

1,093,087

239,552

602,650

1,935,289

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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10. Trade Accounts Receivable

The balances of trade accounts receivable were as follows:

As of

30 June 2022

As of

30 June 2021

Trade accounts receivable

162,419

386,618

Allowance for expected credit losses

(19,681)

(5,494)

Total

142,738

381,124

No interest is charged on the outstanding balances of trade accounts receivable.

As of 30 June 2022, receivable balance of USD 121,580 thousand was due from international customers and the remaining USD 21,158 thousand

being receivable from Ukrainian buyers.

The Group measures the loss allowance for trade account receivables at an amount equal to lifetime ECL. The ECL on trade receivables is

estimated using a provision matrix by reference to past default experience of the debtor and credit rating, adjusted for an assessment of current

and forward-looking information based on general economic conditions affecting the ability of the customers to settle the receivables. Trade re-

ceivables are collectively assessed, except for certain receivables that have differing credit risk characteristics. There has been no change in the

estimation techniques during the current reporting period.

Expected credit loss provisions are recognized in the line Net impairment losses on financial and contract assets, for the year ended 30 June 2022

an increase of USD 15,058 thousand (for the period ended 30 June 2021: decrease USD 864 thousand) of such losses were recognized.

On this basis, the loss allowance as at 30 June was determined for trade accounts receivables as follows:

As at 30 June 2022

As at 30 June 2021

Current

Less than

90 days

past due

More than

90 days

past due

Total

Current

Less than

90 days

past due

than 90

days past

due

Total

Expected loss rate

0.1%

6.3%

91.0%

0.1%

0.6%

94.4%

Gross carrying amount – trade accounts

receivables

104,098

39,577

18,744

162,419

324,568

56,776

5,274

386,618

Loss allowance

(146)

(2,475)

(17,060)

(19,681)

(157)

(358)

(4,979)

(5,494)

The movement in allowance for credit loss relating to trade accounts receivables is presented below:

Trade accounts receivables

Collectively

assessed

Individually

assessed

Total

Opening loss allowance as of 30 June 2020

4,240

3,248

7,488

Decrease in loss allowance recognized in profit or loss during the year

(127)

(737)

(864)

Trade receivables written off during the year as uncollectible

—

(1,122)

Unused amount reversed

—

(8)

Closing loss allowance as of 30 June 2021

4,113

1,381

5,494

Increase in loss allowance recognized in profit or loss during the year

9,600

5,458

15,058

Trade receivables written off during the year as uncollectible

—

(871)

Closing loss allowance as of 30 June 2022

13,713

5,968

19,681

11. Taxes Recoverable and Prepaid

The balances of taxes recoverable and prepaid were as follows:

As of

30 June 2022

As of

30 June 2021

VAT (‘value added tax’) recoverable and prepaid

204,599

185,592

Other taxes recoverable and prepaid

374

Total

204,686

185,966

VAT recoverable and prepaid mainly represents VAT credits in relation to purchases of agricultural products on the domestic market in Ukraine.

Management expects that these balances will be recovered in full within 12 months after the reporting date through cash collection or set-off with

respective VAT liabilities. For the year ended 30 June 2022, the amount of VAT refunded by the government in cash was USD 271,299 thousand

(30 June 2021: USD 373,160 thousand). VAT refund pace decreased in March-June 2022 due to the changes in tax regulations іn the period of

martial law in Ukraine.

As of 30 June 2022, the portion of tax recoverable in the amount of USD 51,771 thousand was presented in line Other non-current assets consid-

ering that the planned utilization period of this amount is more than 12 months.

Differences in expected loss rate are possible due to rounding

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

12. Inventory

The balances of inventories were as follows:

As of

30 June 2022

As of

30 June 2021

Raw materials

346,961

68,829

Goods for resale

292,479

64,733

Finished products

154,954

173,003

Products of agriculture

121,863

7,647

Fuel

20,292

3,700

Work in progress

5,252

2,448

Packaging materials

2,474

1,631

Other inventories

9,647

10,036

Total

953,922

332,027

As of 30 June 2022, raw materials mostly consisted of sunflower seed stock in the amount of USD 323,689 thousand (30 June 2021:

USD 42,513 thousand).

As of 30 June 2022, goods for resale mostly consisted of corn in the amount of USD 179,092 thousand (30 June 2021: USD 7,739 thousand) and

sunflower oil in the amount of USD 53,366 thousand (30 June 2021: USD 32,140 thousand).

As of 30 June 2022, agricultural products mostly consisted of corn in the amount of USD 120,682 thousand (30 June 2021: USD 6,204 thousand).

As of 30 June 2022, finished products mostly consisted of sunflower oil in bulk in the amount of USD 120,713 thousand (30 June 2021:

USD 129,562 thousand).

As of 30 June 2022, inventories with a carrying amount of USD 566,902 thousand (30 June 2021: USD 92,382 thousand) have been pledged as

security for short-term borrowings (Note 23), out of which USD 5,678 thousand are included into Assets classified as held for sale.

The Group utilizes Ukrainian seaports for export of agricultural commodities and oil but due to difficulties with export of agriproduce via Ukrainian

Black Sea ports the Group have been using the alternative export routes. Increased logistic cost for delivery had a negative impact on the value of

certain inventories, as the result, the Group recognized write-downs of inventories to the net realizable value amounting to USD 98,229 thousand

(30 June 2021: nil).

Expenses related to the write downs, creation of a reserve for the inventories which are destroyed, damaged, or located on temporary occupied

areas are recognized in Loss on impairment of assets (Note 31).

13. Biological Assets

The balances of biological assets were as follows:

As of

30 June 2022

As of

30 June 2021

Non-current assets

Non-current cattle

5,937

7,225

Total

5,937

7,225

Current assets

Сrops in fields

160,158

375,095

Current cattle

1,753

1,549

Total

161,911

376,644

For the year ended 30 June 2022, the net gain arising from changes in the fair value of biological assets in the amount of USD 12,537 thousand

(2021: gain of USD 132,631 thousand) includes a USD 2,835 thousand loss on changes in current and non-current cattle’s fair value (2021: loss

of USD 1,445 thousand).

The balances of crops in fields were as follows:

As of 30 June 2022

As of 30 June 2021

Hectares

Value

Hectares

Value

Corn

148,795

75,795

254,068

187,323

Sunflower seed

130,680

61,732

154,003

120,988

Wheat

35,633

16,386

64,655

48,104

Rapeseed

4,727

3,611

8,885

14,306

Soybean

6,331

2,118

4,533

3,602

Other

1,155

516

1,590

772

Total

327,321

160,158

487,734

375,095

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122

Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The following table represents the changes in the carrying amounts of crops in fields during the years ended 30 June 2022 and 2021:

Capitalized

expenditures

Effect of

biological

transformation

Fair value of

biological

assets

As of 30 June 2020

210,135

40,537

250,672

Expenditures capitalized in biological assets (harvest 2020)

108,099

—

108,099

Decrease due to harvest (harvest 2020)

(318,234)

(40,537)

(358,771)

Expenditures capitalized in biological assets (harvest 2021)

200,330

—

200,330

Gain arising from changes in fair value of biological assets (sowing under harvest 2021)

—

165,525

Translation difference

5,094

4,146

9,240

As of 30 June 2021

205,424

169,671

375,095

Expenditures capitalized in biological assets (harvest 2021)

191,889

—

191,889

Decrease due to harvest (harvest 2021)

(397,313)

(169,671)

(566,984)

Expenditures capitalized in biological assets (harvest 2022)

234,293

—

234,293

Gain arising from changes in fair value of biological assets (sowing under harvest 2022)

—

38,327

Decrease due to transfer to assets held for sale (Note 15)

(66,714)

(32,587)

(99,301)

Translation difference

(11,311)

(1,850)

(13,161)

As of 30 June 2022

156,268

3,890

160,158

Farming costs such as expenses for seeds, fertilizers, plant protecting means, energy and fuel, costs for growing and harvesting, silos services,

rent, payroll and other are expensed as incurred and further are capitalized as part of biological assets based on sowing areas and types of costs

allocated to particular crops.

The fair value of agricultural produce was estimated based on market prices as at the date of harvest and is within level 2 of fair value hierarchy.

Crops in fields and non-current cattle of the Group are measured using discounted cash flow technique and are within the level 3 of the fair value

hierarchy. Current cattle are measured based on market prices of livestock of similar age, breed and genetic merit, which is within level 2 of the

fair value hierarchy. The change in the balances of livestock is represented by an increase in heads of milk cows within regular transfer from young

calves to mature herd and the variation in prices and exchange rates between reporting dates.

In the table below biological assets are classified into the three levels prescribed under the accounting standards:

As of 30 June 2022

As of 30 June 2021

Measure

Quantity

Level 1

Level 2

Level 3

Total

Quantity

Level 1

Level 2

Level 3

Total

Livestock

Mature – Milk cows

Heads

5,178

—

5,934

5,002

—

7,220

Immature – Milk cows

Heads

2,288

—

1,007

—

1,007

2,167

—

866

—

866

Immature – Calves

Heads

2,221

—

714

—

714

2,089

—

656

—

656

Beehives

Hives

1,101

—

952

—

Horses

Heads

—

Crops in fields

Hectares

327,485

—

160,158

487,734

—

375,095

Total

—

1,756

166,092

167,848

—

1,554

382,315

383,869

There were no changes in valuation technique since previous year. There were no transfers between any levels during the year.

Fair value

Range of unobservable inputs (average)

Relationship of

unobservable inputs to

fair value

Descrip-

tion

Valuation

techniques

As of

30 June

2022

As of

30 June

2021

Unobservable

Inputs

As of

30 June 2022

As of

30 June 2021

Crops in

field

Discounted

cash flows

160,158

375,095

Crops yield

2.01 – 7.57 (5.15)

tons per hectare

2.21 – 6.80 (5.20)

tons per hectare

The higher the crop yield,

the higher the fair value

Grain price

178 – 476 (301) USD

per ton

193 – 570 (383)

USD per ton

The higher the market price,

the higher the fair value

Discount rate

28.75% (in UAH)

16.47% (in UAH)

The higher the discount rate,

the lower the fair value

Milk cows

Discounted

cash flows

5,934

7,220

Milk yield – liter per

cow

17.71 – 21.74 (20.34)

liters per cow per day

17.63 – 23.05

(20.34) liters per

cow per day

The higher the milk yield, the

higher the fair value

Weight of 1 calf

29 – 32 (31) kg

The higher the weight, the

higher the fair value

Average yield of

calves from 100

cows per year

35 – 89 (62) calves

66 – 74 (70) calves

The higher the yield, the

higher the fair value

Discount rate, %

28.75% (in UAH)

12.40% (in UAH)

The higher the discount rate,

the lower the fair value

If the above unobservable inputs to the valuation model were 5 per cent higher/lower while all other variables were held constant, as of 30 June

2022, the carrying amount of the current and non-current biological assets would increase/decrease by USD 16,059 thousand and

USD 16,179 thousand, respectively (30 June 2021: by USD 58,006 thousand and USD 55,431 thousand, respectively).

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Sustainability

Corporate

Governance

Financial

Statements

14. Other Financial Assets

The balances of other financial assets were as follows:

As of

30 June 2022

As of

30 June 2021

Margin account with brokers

77,136

119,376

Derivative financial instruments

48,879

130,480

Loans granted

43,760

27,535

Corporate and government bonds

33,205

6,532

Short-term bank deposits

—

3,680

Other financial assets

2,831

6,553

Total

205,811

294,156

As of 30 June 2022, 370,000 Ukrainian government bonds in amount of USD 6,077 thousand (30 June 2021: nil) were pledged as security for

short-term borrowings (Note 23).

The Group performs credit risk assessment of counterparties individually. If counterparties are independently rated, these ratings are used. Other-

wise, if there is no independent rating, risk control assesses the credit quality of the counterparty, taking into account its financial position, past

experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the management.

The compliance with credit limits by counterparty is regularly monitored by line management.

As of 30 June 2022, 77% of Margin Account with Brokers and Derivative financial instruments balances are conducted with the financial institutions

rated at F1-B by Fitch (or analogue).

The entity is also exposed to credit risk in relation to debt investments in corporate and government bonds that are measured at fair value through

profit or loss. Government bonds are represented by bonds issued by the Ukrainian government and the credit rating of Ukraine has been down-

graded since the beginning of war. The corporate bonds are not rated by the international rating agencies. Other instruments are considered to be

low credit risk where they have a low risk of default, and the issuer has a strong capacity to meet its contractual cash flow obligations in the near

term.

15. Assets Classified as Held for Sale

After the beginning of full-scale military aggression of Russia against Ukraine, the management of the Group decided to divest part of its farming

entities comprising 134 thousand hectares of leasehold farmland with related farming infrastructure, machinery and working capital. Non-current

assets of disposal group belong to the farming segment.

On 26 April 2022, the Group entered into the legally binding share purchase agreement with the buyer, which will be finalized after fulfilment of

certain conditions. As not all the conditions were met as of 30 June 2022 the deal was not finalized and the assets and liabilities attributable to

disposal Group were classified as held for sale as at reporting date.

The consideration to be paid by the buyer is USD 210,000 thousand. As of 30 June 2022, the buyer, directly controlled by Mr. Andrii Verevskyi,

made a prepayment in the amount of USD 20,000 thousand.

The associated assets and liabilities were consequently presented as held for sale as of 30 June 2022.

As of 30 June 2022, the carrying amounts of assets and liabilities held for sale at consolidated basis were:

As of

30 June 2022

Cash and cash equivalents

571

Trade accounts receivable

1,082

Prepayments to suppliers

4,329

Taxes recoverable and prepaid

16,979

Inventory

79,237

Biological assets (Note 13)

99,301

Other financial assets

600

Property, plant and equipment (Note 16)

29,317

Right-of-use assets

49,053

Intangible assets (Note 15)

1,584

Non-current financial assets

1,317

Other non-current assets

3,698

Total assets

287,068

Trade accounts payable

7,200

Advances from customers and other current liabilities

5,499

Current portion of lease liabilities (Note 9)

15,077

Other financial liabilities

2,211

Lease liabilities (Note 9)

86,845

Other non-current liabilities

Total liabilities

116,848

Net assets (at consolidated basis)

170,220

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

124

Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The assets classified as held for sale and associated liabilities are presented in this Note after elimination of intercompany balances. As disclosed

in Note 31 the Group has recognized an impairment of assets classified as held for sale in the amount of USD 92,920 thousand.

Consideration was determined based on discounted cash flow model used for calculation of fair value less cost to sell of non-current assets and

carrying value of remaining assets and associated liabilities before elimination of intercompany balances.

Key assumptions to determine the fair value less cost to sell of the non-current assets held for sale and biological assets included in the table

above were the following:

Crop

Yield, t/ha

Price for agriproduce, USD/t

Corn

8.7 - 10.3

168 - 222

Sunflower seeds

2.9 - 3.3

303 - 524

Wheat

5.6 - 6.1

191 - 277

Rapeseed

3.6 - 3.7

400 - 550

If the price for agriproduce would be 5 per cent higher/lower while all other variables were held constant, as of 30 June 2022, the carrying amount

of the non-current assets held for sale would have increased/decreased by USD 60,778 thousand and USD 67,454 thousand, respectively.

If the yield would be 5 per cent higher/lower while all other variables were held constant, as of 30 June 2022, the carrying amount of the non-

current assets held for sale would have increased/decreased by USD 55,744 thousand and USD 55,791 thousand, respectively.

Crops in fields for such legal entities held for sale were measured using discounted cash flow technique applying 40.42% discount rate.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

16. Property, Plant and Equipment

The following table represents movements in property, plant and equipment for the year ended 30 June 2022:

Oilseed

Processing

Infrastructure

and Trading

Farming

Other

Total

Net Book Value as at 30 June 2021

564,775

339,590

138,193

22,647

1,065,205

Land

967

440

1,048

2,533

Buildings and Constructions

215,058

156,149

18,548

18,117

407,872

Production machinery and equipment

87,636

88,368

2,113

1,539

179,656

Agricultural equipment and vehicles

4,403

74,183

69,124

1,119

148,829

Other fixed assets

2,544

1,804

3,836

704

8,888

CIP and uninstalled equipment

254,167

18,646

44,494

120

317,427

Additions in CIP and uninstalled equipment

59,175

18,944

29,161

2,686

109,966

Reclassification

—

46,574

(46,568)

(6)

—

Land

—

(13)

—

Buildings and Constructions

1,101

(250)

323

1,175

Production machinery and equipment

(1,118)

490

(34)

(8)

(670)

Agricultural equipment and vehicles

170

(72)

—

Other fixed assets

(153)

(405)

(232)

(789)

CIP and uninstalled equipment

—

46,725

(46,540)

—

185

Transfers

—

Land

—

103

Buildings and Constructions

43,081

38,645

2,951

84,699

Production machinery and equipment

76,200

20,074

356

705

97,335

Agricultural equipment and vehicles

1,817

2,667

13,558

1,061

19,103

Other fixed assets

1,059

1,709

1,884

270

4,922

CIP and uninstalled equipment

(122,158)

(63,178)

(18,768)

(2,058)

(206,162)

Revaluation

59,393

—

59,393

Buildings and Constructions

53,517

—

53,517

Production machinery and equipment

5,876

—

5,876

Disposals (at NBV)

(316)

(289)

(2,689)

(12)

(3,306)

Buildings and Constructions

(1)

(9)

(422)

—

(432)

Production machinery and equipment

(126)

(115)

(33)

(3)

(277)

Agricultural equipment and vehicles

(68)

(97)

(617)

(9)

(791)

Other fixed assets

(12)

(4)

(39)

—

(55)

CIP and uninstalled equipment

(109)

(64)

(1,578)

—

(1,751)

Transfers to Assets classified as held for sale (at NBV) (Note 15)

—

(42,905)

(20,483)

—

(63,388)

Land

—

(34)

—

(34)

Buildings and Constructions

—

(26,409)

(2,987)

—

(29,396)

Production machinery and equipment

—

(14,131)

(349)

—

(14,480)

Agricultural vehicles and equipment

—

(117)

(12,672)

—

(12,789)

Other fixed assets

—

(253)

(631)

—

(884)

CIP and uninstalled equipment

—

(1,995)

(3,810)

—

(5,805)

Depreciation expense

(30,809)

(22,820)

(24,633)

(2,005)

(80,267)

Buildings and Constructions

(13,116)

(7,490)

(1,792)

(580)

(22,978)

Production machinery and equipment

(15,487)

(8,464)

(534)

(643)

(25,128)

Agricultural equipment and vehicles

(1,207)

(5,749)

(20,517)

(463)

(27,936)

Other fixed assets

(999)

(1,117)

(1,790)

(319)

(4,225)

Impairment of assets and reversal of impairment loss of the previous period

(48,275)

(110)

(2,780)

—

(51,165)

Land

(702)

—

(702)

Buildings and Constructions

(17,685)

(72)

—

(17,757)

Production machinery and equipment

(11,696)

(15)

—

(11,711)

Agricultural vehicles and equipment

(105)

(3)

(16)

—

(124)

Other fixed assets

(313)

(20)

(2,764)

—

(3,097)

CIP and uninstalled equipment

(17,774)

—

(17,774)

Translation difference

(266)

(11,482)

(6,536)

(81)

(18,365)

Land

—

(34)

(5)

—

(39)

Buildings and Constructions

—

(8,333)

(1,434)

(20)

(9,787)

Production machinery and equipment

—

(2,783)

(141)

(2)

(2,926)

Agricultural equipment and vehicles

(265)

(111)

(4,566)

(6)

(4,948)

Other fixed assets

(1)

(118)

(264)

(9)

(392)

CIP and uninstalled equipment

—

(103)

(126)

(44)

(273)

Net Book Value as at 30 June 2022

603,677

327,502

63,665

23,229

1,018,073

Land

266

502

1,048

1,861

Buildings and Constructions

281,955

152,231

15,187

17,540

466,913

Production machinery and equipment

141,285

83,424

1,378

1,588

227,675

Agricultural equipment and vehicles

4,745

70,774

44,222

1,702

121,443

Other fixed assets

2,125

1,596

—

647

4,368

CIP and uninstalled equipment

173,301

18,975

2,833

704

195,813

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

126

Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The following table represents movements in property, plant and equipment for the year ended 30 June 2021:

Oilseed

Processing

Infrastructure

and Trading

Farming

Other

Total

Net Book Value as at 30 June 2020

517,624

321,662

120,858

24,224

984,368

Land

967

380

1,089

2,506

Buildings and Constructions

227,099

98,486

18,677

18,379

362,641

Production machinery and equipment

99,118

43,612

12,675

1,759

157,164

Agricultural equipment and vehicles

4,209

82,273

57,139

1,097

144,718

Other fixed assets

3,353

3,920

7,773

901

15,947

CIP and uninstalled equipment

182,878

92,991

24,524

999

301,392

Additions in CIP and uninstalled equipment

79,049

46,953

47,667

930

174,599

Reclassification

(10)

179

(214)

—

Buildings and Constructions

(29)

2,042

(406)

1,608

Production machinery and equipment

587

(8,152)

(27)

(7,506)

Agricultural equipment and vehicles

11,913

12,030

Other fixed assets

(577)

(2,008)

(3,569)

(6,132)

Transfers

—

Land

—

Buildings and Constructions

3,059

63,291

3,116

884

70,350

Production machinery and equipment

2,341

52,210

429

408

55,388

Agricultural equipment and vehicles

1,288

2,981

21,323

307

25,899

Other fixed assets

981

1,205

2,536

207

4,929

CIP and uninstalled equipment

(7,669)

(119,752)

(27,413)

(1,806)

(156,640)

Disposals (at NBV)

(386)

(416)

(2,273)

(126)

(3,201)

Buildings and Constructions

(49)

254

(716)

—

(511)

Production machinery and equipment

(200)

(38)

(3)

(192)

Agricultural equipment and vehicles

(35)

(24)

(1,309)

—

(1,368)

Other fixed assets

(12)

(3)

(72)

(84)

(171)

CIP and uninstalled equipment

(90)

(692)

(138)

(39)

(959)

Disposal of Subsidiaries (at NBV)

—

(780)

—

(780)

Buildings and Constructions

—

(593)

—

(593)

Production machinery and equipment

—

(143)

—

(143)

Other fixed assets

—

(44)

—

(44)

Depreciation expense

(22,971)

(25,167)

(26,032)

(1,786)

(75,956)

Buildings and constructions

(9,772)

(6,182)

(1,792)

(524)

(18,270)

Production machinery and equipment

(10,998)

(6,809)

(2,166)

(592)

(20,565)

Agricultural equipment and vehicles

(1,001)

(11,060)

(19,518)

(327)

(31,906)

Other fixed assets

(1,200)

(1,116)

(2,556)

(343)

(5,215)

Impairment loss

(8,462)

—

(8,462)

Buildings and constructions

(5,250)

—

(5,250)

Production machinery and equipment

(3,212)

—

(3,212)

Translation difference

(69)

(2,841)

(1,813)

(640)

(5,363)

Land

—

(5)

(1)

(41)

(47)

Buildings and Constructions

—

(1,149)

(331)

(623)

(2,103)

Production machinery and equipment

—

(637)

(635)

(6)

(1,278)

Agricultural equipment and vehicles

(67)

(46)

(424)

(7)

(544)

Other fixed assets

(1)

(150)

(276)

(426)

CIP and uninstalled equipment

(1)

(854)

(146)

(965)

Net Book Value as at 30 June 2021

564,775

339,590

138,193

22,647

1,065,205

Land

967

440

1,048

2,533

Buildings and Constructions

215,058

156,149

18,548

18,117

407,872

Production machinery and equipment

87,636

88,368

2,113

1,539

179,656

Agricultural equipment and vehicles

4,403

74,183

69,124

1,119

148,829

Other fixed assets

2,544

1,804

3,836

704

8,888

CIP and uninstalled equipment

254,167

18,646

44,494

120

317,427

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

Statements

Total cost of property, plant and equipment and total accumulated depreciation as of 30 June 2022 and 2021 were as follows:

Cost as of

30 June 2022

Accumulated

depreciation as of

30 June 2022

Cost as of

30 June 2021

Accumulated

depreciation as of

30 June 2021

Land

1,861

—

2,533

—

Buildings and constructions

542,212

(75,299)

464,711

(56,839)

Production machinery and equipment

314,313

(86,638)

243,855

(64,199)

Agricultural equipment and vehicles

266,085

(144,642)

307,768

(158,939)

Other fixed assets

22,497

(18,129)

25,022

(16,134)

CIP and uninstalled equipment

195,813

—

317,427

—

Total

1,342,781

(324,708)

1,361,316

(296,111)

Had the Group’s buildings and constructions and production machinery and equipment (Oilseed Processing segment) been measured on a histor-

ical cost basis, their carrying amount would have been as follows:

As of

30 June 2022

As of

30 June 2021

Buildings and constructions

224,047

196,047

Production machinery and equipment

134,257

72,237

Total

358,304

268,284

During the year ended 30 June 2022, the Group has made reclassification between classes of property, plant and equipment. Most reclassifications

were made within a segment for more consistent presentation as a result of adoption of the unique property, plant and equipment classification

module.

During the year ended 30 June 2022, the Group has made reclassification between segment Farming and Infrastructure and Trading. Construction

in progress and uninstalled equipment consisted mainly of silos were reallocated from the Farming segment to the Infrastructure and Trading

segment in the amount USD 46,540 thousand since silos are going to be used not only for the Farming segment, but also for Infrastructure and

Trading sourcing.

For the year ended 30 June 2022, interest was capitalized in the amount of USD 4,131 thousand (2020: USD 5,103 thousand) (Note 9). For the

year ended 30 June 2022, there were no borrowing costs eligible for capitalization apart from project specific borrowings.

As of 30 June 2022, prepayments for property, plant and equipment were in the amount USD 45,098 thousand (30 June 2021: USD 31,237

thousand).

As of 30 June 2022, property, plant and equipment with a carrying amount of USD 393,782 thousand (30 June 2021: USD 311,684 thousand)

were pledged by the Group as collateral against short-term and long-term bank borrowings (Note 23).

During the year ended 30 June 2022, the Group performed revaluation of buildings, constructions, production machinery and equipment used in

the Oilseed Processing segment and impairment test for its other classes of property, plant and equipment.

The key assumptions for the revaluation and related sensitivity are disclosed in Revaluation of Property, Plant and Equipment (Note 5).

As of 30 June 2022, the Group recognized a revaluation surplus of USD 53,517 for the buildings and constructions in the Oil processing segment

as the result of increased costs to reproduce such assets. The fair value of these assets was further tested for economic impairment by income

method. Income method is based on the current capacity and ability to export irrespectively of Black Sea ports operation. In addition, the majority

of these assets have potential for alternative usage as storage facilities, which are of a demand in Ukraine.

For the property, plant and equipment other than the ones carried at fair value, the Group performed an impairment test. As the result of the test,

the recoverable amount of assets within the Farming segment was significantly below their carrying value. Hence, the Group determined a recov-

erable amount based on the fair value less cost to sell method, using the adjusted market approach (level 2 of the fair value hierarchy).

The recoverable amount of the other CGUs apart from the Farming segment was determined based on the value-in-use method. This method was

based on the probability-weighted scenarios and key assumptions disclosed in Note 5. Management determined budgeted gross margin based on

expectations of market developments. The weighted average growth rate used was consistent with forecasts included in industry reports. The

discount rates used were pre-tax and reflected specific risks relating to the relevant segments. As of 30 June 2022, the assumptions for the EBITDA

margin are based on average purchase prices of sunflower seeds and selling sunflower oil and equal to the margin amount from 75 to 185 USD

per one metric ton of oil (2021: EBITDA margin 78 to 100 USD per one metric ton of oil).

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Statements

The key assumptions used in the value in use and income approach calculations by segment are as follows:

Oilseed processing

Growth rate, %

Discount rate, %

Price of sunflower

oil, USD

Price of sunflower

seeds, USD

EBITDA

margin

As of 30 June 2022

0-5%

10.2%

1,001-1,190

372-499

3-13%

As of 30 June 2021

2-5%

9.9%

842-1,070

402-533

5-13%

Price of sunflower oil and the price of sunflower seeds are interdependent and the effect from their changes are offset within a relatively short

period of time. Should the price of sunflower oil and seeds decrease by 5 per cent while all other variables were held constant, as of 30 June 2022,

the headroom would increase by USD 48,914 thousand.

Infrastructure and Trading

Growth rate, %

Discount rate, %

Transshipment

rate, USD/t

Transshipment vol-

ume, thousand t

EBITDA

margin

As of 30 June 2022

2-5%

10.2%

7.93-11.86

720-10,383

66-93%

As of 30 June 2021

9.9%

7.42-8.26

4,783-5,528

59-83%

Impairment test as at 30 June 2022 did not identify the cash-generating units in Infrastructure and Trading segments as being sensitive to reason-

ably possible changes in key assumptions.

The Group recognized a full impairment of USD 50,300 thousand for those assets located at the temporary non-controlled territories (Note 31).

Information about occupied, damaged or destroyed as a result of military actions property, plant and equipment is disclosed in going concern (Note

4).

17. Right-of-Use Assets

The following table represents movements in right-of-use assets for the year ended 30 June 2022:

Land

Agricultural

equipment and

vehicles

Buildings

Total

Cost as of 30 June 2021

416,277

13,942

7,794

438,013

Additions and modifications

67,146

470

701

68,317

Transfers to Assets classified as held for sale (Note 15)

(133,205)

(1,960)

(240)

(135,405)

Disposals

(19,382)

(1,055)

(173)

(20,610)

Translation difference

(31,175)

(671)

(26)

(31,872)

Cost as of 30 June 2022

299,661

10,726

8,056

318,443

Accumulated depreciation as of 30 June 2021

(64,631)

(7,552)

(1,131)

(73,314)

Depreciation

(40,884)

(2,416)

(635)

(43,935)

Disposals

10,950

179

173

11,302

Transfers to Assets classified as held for sale (Note 15)

28,021

1,282

29,345

Translation difference

5,503

363

5,899

Accumulated depreciation as of 30 June 2022

(61,041)

(8,144)

(1,518)

(70,703)

Net book value as of 30 June 2022

238,620

2,582

6,538

247,740

The following table represents movements in right-of-use assets for the year ended 30 June 2021:

Land

Agricultural

equipment and

vehicles

Buildings

Total

Cost as of 30 June 2020

368,869

10,672

7,777

387,318

Additions and modifications

70,056

3,424

73,504

Disposals

(17,305)

(152)

—

(17,457)

Translation difference

(5,343)

(2)

(7)

(5,352)

Cost as of 30 June 2021

416,277

13,942

7,794

438,013

Accumulated depreciation as of 30 June 2020

(34,420)

(4,973)

(629)

(40,022)

Depreciation

(36,913)

(2,732)

(506)

(40,151)

Disposals

6,024

152

—

6,176

Translation difference

678

683

Accumulated depreciation as of 30 June 2021

(64,631)

(7,552)

(1,131)

(73,314)

Net book value as of 30 June 2021

351,646

6,390

6,663

364,699

Approach to impairment test and the key assumptions used in the calculations are presented in Note 5.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

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Financial

Statements

18. Intangible Assets

The following table represents movements in intangible assets for the year ended 30 June 2022:

Trademarks

Land lease

rights

Crypto

assets

Other

intangible

assets

Total

Cost as of 1 July 2021

22,036

125,724

—

13,259

161,019

Additions

—

173,100

5,488

178,588

Disposals

—

(21,030)

(102)

(21,132)

Transfers to Assets classified as held for sale (Note 15)

—

(22,769)

—

(695)

(23,464)

Transfer to other financial assets

—

(17,800)

—

(17,800)

Translation difference

—

(8,469)

—

(696)

(9,165)

Cost as of 30 June 2022

22,036

94,486

134,270

17,254

268,046

Accumulated amortization and impairment losses as of 1 July 2021

(8,318)

(86,366)

—

(4,191)

(98,875)

Amortization charge

—

(8,632)

—

(1,333)

(9,965)

Disposals

—

Transfers to Assets classified as held for sale (Note 15)

—

20,024

—

20,038

Impairment loss recognized in the Statement of Profit or Loss

(451)

(23,698)

(34,075)

(3,409)

(61,633)

Translation difference

—

6,416

—

6,497

Accumulated amortization and impairment losses as of 30 June 2022

(8,769)

(92,256)

(34,075)

(8,748)

(143,848)

Net book value as of 30 June 2022

13,267

2,230

100,195

8,506

124,198

As of 30 June 2022, crypto assets consisted only of stable coins, cost of which directly connected to the exchange rate of the fiat currency (USD).

Subsequently to the year end, the Group converted USD 91,600 thousand of its crypto assets into cash with the bank and remaining amount was

left in fiat money, accounted within other financial assets.

The following table represents movements in intangible assets for the year ended 30 June 2021:

Trademarks

Land lease

rights

Other

intangible as-

sets

Total

Cost as of 1 July 2020

22,036

130,186

8,293

160,515

Additions

—

3,334

Disposals

—

(568)

Other movements

—

(2,204)

2,204

—

Translation difference

—

(2,258)

(4)

(2,262)

Cost as of 30 June 2021

22,036

125,724

13,259

161,019

Accumulated amortization and impairment loss as of 1 July 2020

(9,593)

(78,717)

(4,120)

(92,430)

Amortization charge

—

(8,802)

(637)

(9,439)

Disposals

—

540

Reduction of loss on impairment recognized in the Statement of Profit or Loss

1,275

—

1,275

Translation difference

—

1,153

1,179

Accumulated amortization and impairment loss as of 30 June 2021

(8,318)

(86,366)

(4,191)

(98,875)

Net book value as of 30 June 2021

13,718

39,358

9,068

62,144

Included in the intangible assets of Subsidiaries are the ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’ trademarks with net book values of

USD 4,546 thousand, USD 5,553 thousand, USD 2,989 thousand and USD 179 thousand, respectively, in 2022 (USD 4,567 thousand, USD 5,929

thousand, USD 3,043 thousand and USD 179 thousand, respectively, in 2021). These trademarks are used by the Group for the sale of bottled

sunflower oil mostly in the Ukrainian market.

In management’s view, there is no foreseeable limit to the period over which the trademarks are expected to generate net cash inflows for the

Group.

The Group believes that, as a result of further promotion of the ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’ trademarks, the market share

enjoyed by the Group will be stable and thus the Group will obtain economic benefits from them for an indefinite period of time.

Accordingly, the trademarks that belong to the Group are considered to have an indefinite useful life and thus are not amortized but tested for

impairment by comparing their recoverable amount with their carrying amount annually on 30 June and whenever there is an indication that the

trademarks may be impaired.

The impairment testing of the value of trademarks as of 30 June 2022 was performed by an independent appraiser. The recoverable amount of

the trademarks was based on the fair value less costs to sell method using the royalty approach of valuation and is classified within level 3 of the

fair value hierarchy. This calculation uses cash flow projections based on financial budgets approved by management and covering a five-year

period. The total amount of the trademarks was allocated to the Oilseed Processing segment (as one cash-generating unit).

Key assumptions used for the calculation were as follows:

• The royalty rate used was determined at the weighted average market level of 5.00%;

• Growth rates are based on the expected market growth rate for sunflower oil consumption. As of 30 June 2022, management believed that the

market for bottled oil was saturated and for a period of five years no cumulative growth is expected; and

• As bottled oil is predominantly sold within Ukraine, the discount rate used was based on the weighted average cost of capital rate of 16.01% for

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Statements

UAH denominated cash flow projections.

As a result of testing performed, as of 30 June 2022, impairment loss for the trademarks ‘Schedry Dar’, ‘Stozhar’ and ‘Zolota’ in the amount of USD

21 thousand, USD 377 thousand and USD 53 thousand, respectively, was recognized (30 June 2021: impairment loss for the trademarks ‘Schedry

Dar’, ‘Stozhar’ and ‘Zolota’ recognized in in prior periods was partly reversed in the amount of USD 110 thousand, USD 808 thousand and USD

357 thousand respectively). It was recognized as loss on impairment of intangible assets within Loss on impairment of assets (Note 31). Impairment

was caused primarily by shrinkage of consumer demand for bottled sunflower oil.

19. Goodwill

The following table represents movements in goodwill for the year:

For the year ended

30 June 2022

For the year ended

30 June 2021

Cost at beginning of the year

133,909

134,324

Translation differences

(1,628)

(415)

Cost at the end of the year

132,281

133,909

Accumulated impairment losses at the beginning of the year

(12,984)

(10,837)

Impairment losses recognized in the year

(47,677)

(2,147)

Accumulated impairment losses at the end of the year

(60,661)

(12,984)

Balance at the end of the year

71,620

120,925

A summary of goodwill allocated to individual entities or group of entities as separate cash-generating units (CGU), were aggregated at the segment

level and presented below:

Goodwill carrying value

Segment

Cash-generating unit

As of 30 June

2022

As of 30 June

2021

Oilseed Processing

BSI LLC

—

35,331

Kropyvnytskyi OEP PJSC

28,978

31,334

Prydniprovskyi OEP LLC

29,446

Vovchansk OEP LLC

—

1,906

Infrastructure and Trading

Transbulkterminal LLC

9,594

10,328

RTK-Ukraine

3,602

3,877

Farming

Druzhba-Nova Group and other agricultural farms

—

8,703

Total

71,620

120,925

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable

amount of a CGU was determined based on the higher of value from value-in-use or fair value less cost of disposal. Impairment test of goodwill

was based on, the same assumptions as impairment test for property, plant and equipment (Note 16).

As of 30 June 2022, the Group recognized an impairment charge against goodwill in the amount of USD 47,677 thousand belonging to the Oilseed

Processing and Farming CGUs and included within ‘Loss on impairment of assets’ line (30 June 2021: USD 2,147 thousand in Oilseed Processing

segment). That happened as a result of full-scale Russian military invasion of Ukraine, since the Group suffered operational and logistic difficulties,

namely temporarily suspension of export through Ukrainian ports which resulted in the absence of active procurement, processing and export of

grain and sunflower oil.

20. Non-current Financial Assets

The balances of non-current financial assets were as follows:

As of

30 June 2022

As of

30 June 2021

Loans provided to related parties (Note 34)

26,564

37,684

Loans to farmers

10,060

616

Investments in financial assets

7,513

Other non-current assets

8,395

509

Total

52,532

46,322

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Statements

21. Advances from Customers and Other Current Liabilities

The balances of advances from customers and other current liabilities were as follows:

As of

30 June 2022

As of

30 June 2021

Accrued payroll, payroll related taxes and bonuses

44,236

88,393

Advances for assets classified as held for sale

20,000

—

Contract liabilities

11,528

29,206

Provision for unused vacations and other provisions

6,106

8,239

Taxes payable and provision for tax liabilities

3,499

5,545

Other current liabilities

3,831

9,160

Total

89,200

140,543

USD 29,206 thousand of revenue was recognized in the current reporting period related to the contract liabilities as at 30 June 2022 (2021: USD

10,500 thousand), which related to advances.

22. Other Financial Liabilities

The balances of other financial liabilities were as follows:

As of

30 June 2022

As of

30 June 2021

Payable for legal claims (Note 35)

38,387

36,217

Payable from profit-sharing arrangement

32,626

133,802

Derivative financial instruments

23,130

93,758

Accounts payable for property, plant and equipment

7,884

13,199

Other current liabilities

26,510

1,942

Total

128,537

278,918

23. Borrowings

The balances of borrowings were as follows:

As of

30 June 2022

As of

30 June 2021

Current liabilities

Bank credit lines

854,828

12,424

Short-term borrowings

234,429

—

Interest accrued on short-term borrowings

3,829

294

Bank overdrafts (Note 9)

100

Current portion of long-term borrowings

—

21,715

Interest accrued on long-term borrowings

—

1,070

Total

1,093,087

35,603

Non-current liabilities

Long-term borrowings

—

227,740

Total

—

227,740

The balances of short-term borrowings in details by tranches were as follows:

Due through

Interest rate in range

Currency

Amount due

30 June 2022

Amount due

30 June

2021

European bank

September 2022

from 2.30% to 3.50% plus LIBOR

USD

348,870

—

European bank

September 2022

from 2.90% to 4.00% plus SOFR

USD

157,042

—

Ukrainian subsidiary of European bank

September 2022

from 13.50% to 22.00%

UAH

109,894

—

Ukrainian subsidiary of European bank

September 2022

from 3.00% to 3.80%

USD

93,243

—

Ukrainian subsidiary of European bank

September 2022

from 5.75% to 7.00%

USD

45,000

—

Ukrainian bank

May 2023

from 17.00% to 23.73%

UAH

43,753

—

Ukrainian subsidiary of European bank

September 2022

from 2.20% to 2.97%

USD

37,027

—

European bank

September 2022

COF+2.50%

USD

12,000

—

European bank

September 2022

from 2.20% to 2.97%

USD

8,000

—

European bank

July 2021

Libor+2.45%

USD

—

6,329

Ukrainian subsidiary of European bank

July 2021

6.50%

UAH

—

5,887

Ukrainian subsidiary of European bank

August 2021

Libor+4.50%

USD

—

308

Total

854,829

12,524

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

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Governance

Financial

Statements

As of 30 June 2022, the Group classified its long-term bank borrowings as short-term. As at 30 June 2022 (being the relevant covenant testing

date), the Group had exceeded certain ratios for the purposes of financial covenants in certain of its bank loans. Although effective waivers were

in place, such waivers had an expiry date within 12 months of 30 June 2022, and, accordingly, the Group did not have an unconditional right to

defer settlement for 12 months or longer with respect to its bank loans as at 30 June 2022.

The balance of the borrowings with contractual maturity more than 12 month as at 30 June 2022 is disclosed in the table below by tranches:

Initial

contractual

maturity

Interest rate in range

Currency

Amount due

30 June 2022

Amount due

30 June 2021

European bank

2029

from 2.77% to 2.84% plus LIBOR

USD

95,968

103,835

European bank

2030

from 2.77% to 2.84% plus LIBOR

USD

91,421

91,860

European bank

2027

from 1.00% to 4.50% plus LIBOR

USD

47,040

53,760

Total

234,429

249,455

As of 30 June 2022, the undrawn amount of bank borrowings amounted to USD 10,938 thousand including available facility amounts upon bank

credit lines and long-term financing (30 June 2021: USD 855,482 thousand).

Libor-based borrowings are exposed to 3M USD Libor, which is due to be discontinued in mid-2023. During the year ended 30 June 2022, the

Group established a LIBOR transition plan in course of Interest Rate Benchmark Reform. The Group's management remains in discussions with

the banks to determine both the alternative benchmark and the timing of the further transition. In accordance with the management’s expectation,

the impact of alternative benchmark, once determined, is not expected to be material to the Group.

As of 30 June, bank borrowings were secured as follows:

As of

30 June 2022

As of

30 June 2021

Inventory (Note 12)

566,902

92,382

Property, plant and equipment (Note 16)

393,782

316,867

Cash and cash equivalents (Note 9)

8,000

—

Other financial assets (Note 14)

6,077

—

Future sales receipts

—

106,691

Total

974,761

515,940

24. Lease liabilities

The following is the maturity analysis of lease payments under the lease agreements as of 30 June:

Maturity

As of

30 June 2022

As of

30 June 2021

Payable within one year

41,720

38,652

Payable in the second to fifth years

179,191

282,430

Payable after five years

301,134

442,828

Total

522,045

763,910

less

Future finance charges

(282,493)

(439,418)

Present value of lease obligations

239,552

324,492

less

Current portion

(39,111)

(37,338)

Lease obligations, long-term portion

200,441

287,154

25. Bonds issued

The balances of bonds issued were as follows:

Initial contractual

maturity

As of

30 June 2022

As of

30 June 2021

US 300,000 thousand 6.75% coupon bonds

October 2027

297,314

296,991

US 300,000 thousand 6.50% coupon bonds

October 2024

297,724

296,951

US 500,000 thousand 8.75% coupon bonds

January 2022

—

212,495

Total

595,038

806,437

In October 2020, the Group issued USD 300,000 thousand bonds priced at par, that will mature on 27 October 2027. The bonds bear interest at

the rate of 6.75% per annum payable semi-annually in arrears starting from 27 April 2021.

As of 30 June 2022, the bonds are rated CC by S&P, one notch below the Ukrainian sovereign. Also, the bonds keep CC rating assigned by Fitch.

In October 2019, the Group issued USD 300,000 thousand unsecured notes, that will mature on 17 October 2024. These notes bear interest at

the rate of 6.5% per annum payable semi-annually in arrears starting from 17 April 2020.

In January 2017 the Group issued USD 500,000 thousand unsecured notes, that matured on 31 January 2022. These notes bore interest at the

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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rate of 8.75% per annum payable semi-annually in arrears on 31 January and 31 July each year commencing from 31 July 2017.

All the notes are unsecured, ranking equally with all existing and future senior unsecured indebtedness of the Company and have been uncondi-

tionally and irrevocably guaranteed by designated Group subsidiaries on the joint and several basis to the maximum extent permitted by law.

All the bonds contain certain restrictive covenants that limit the ability of the Company and, where applicable, its restricted subsidiaries to create

or incur certain liens, make restricted payments, engage in amalgamations, mergers or consolidations, or combination with other entities; make

certain disposals and transfers of assets; and enter into transactions with affiliates.

On 5 November 2020, as a result of partial early redemption of its USD 500,000 thousand 8.75% coupon bonds, which were due in 2022, the

Group repaid premium in the amount of USD 16,108 thousand and interest amounting to USD 6,207 thousand, both of which were recognized

within Finance costs, net (Interest on corporate bonds line).

On 20 December 2021, according to the announced early redemption of its USD 500,000 thousand 8.75% coupon bonds which were due in 2022,

the Company redeemed these notes, plus the Make Whole Premium (the premium) on the Company, plus accrued and unpaid interest (the

interest).

As a result of early redemption of these notes, the Group repaid the premium in the amount of USD 1,888 thousand and the interest amounting to

USD 7,252 thousand, both of which were recognized within Finance costs, net (Interest on corporate bonds line).

As of 30 June 2022, although effective bank waivers relating to its loans were in place, such waivers had an expiry date within 12 months of 30

June 2022, and, accordingly, the Group did not have an unconditional right to defer settlement of its bank loans for 12 months or longer (Note 23).

Accordingly, there was a risk that such loans would be accelerated and become due and payable at a future date within 12 months of the end of

the reporting period, which could in turn trigger a cross-acceleration event of default under the Group’s outstanding bonds. As a result, the Group

also did not have an unconditional right (within the meaning of paragraph 69 d) of IAS 1 "Presentation of Financial Statements") to defer settlement

of its bonds for 12 months or longer. The Group therefore classified its long-term bonds as short-term. Notwithstanding such classification, man-

agement notes that, in view of the effective waivers from banks that were in place as of 30 June 2022, cross-acceleration events of default under

the bonds were not triggered as at such date, and the Group remained otherwise in full compliance with the terms of its bonds.

26. Income Tax

The Group operates globally and is subject to the tax laws and regulations of numerous tax jurisdictions and authorities as well as tax agreements

and treaties among these jurisdictions. The corporate income tax rate in Ukraine, where the main operations of the Group are located, was 18%

as of 30 June 2022 and 2021.

The majority of the Group’s companies that are involved in agricultural production pay the Unified Agricultural Tax (UAT) in accordance with the

Tax Code of Ukraine. The UAT replaces the following taxes for agricultural producers: Corporate Income Tax, Land Tax, Special Water Consump-

tion Duty and Trade Patent. The UAT is calculated by local authorities and depends on the area and valuation of land occupied. This tax regime is

valid indefinitely. The UAT does not constitute an income tax and, as such, is recognized in the Consolidated Statement of Profit or Loss in cost of

sales.

The tax rate for agricultural producers is calculated as a percentage of the target-ratio based monetary valuation per hectare of agricultural land

resulting in substantially lower tax charges compared to corporate income tax. Agricultural manufacturers are eligible to apply for a single tax if

they meet both the following two requirements:

• The share of the entity’s revenue from agricultural production (i.e., sale of the entity’s cultivated and processed products) to the total share of its

income equals or exceeds 75 per cent; and

• These agriproducts were cultivated on land that such agricultural manufacturers own or lease, and the ownership title and leases have been

duly registered.

The components of income tax expense were as follows:

For the year ended

30 June 2022

For the year ended

30 June 2021

Current income tax charge

(32,957)

(41,105)

Deferred tax benefit relating to origination and reversal of temporary differences

35,738

8,853

Total income tax benefit/(expenses) recognized in the reporting period

2,781

(32,252)

The income tax expense is reconciled to the profit before income tax per Consolidated Statement of Profit or Loss as follows:

As of

30 June 2022

As of

30 June 2021

(Loss)/ Profit before income tax

(43,481)

674,841

Tax benefit/(expense) at Ukrainian statutory tax rate of 18%

7,827

(121,471)

Effect of income that is exempt from taxation (farming)

28,771

85,600

Effect of different tax rates of Subsidiaries operating in other jurisdictions

1,874

21,710

Effect of unused tax losses and tax offsets not recognized as deferred tax assets

(6,269)

740

Other expenditures not allowable for income tax purposes and non-taxable income, net

(29,422)

(18,831)

Income tax benefit/(expenses)

2,781

(32,252)

For the year ended 30 June 2022, USD 10,564 thousand income tax loss were recognized in other comprehensive income (for the year ended 30

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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June 2021: USD 547 thousand income tax benefit).

The primary components of the deferred tax assets and deferred tax liabilities were as follows:

As of

30 June 2022

As of

30 June 2021

Tax losses carried forward

14,564

11,810

Valuation of property, plant and equipment

13,843

13,166

Valuation of inventories

19,229

354

Others

2,088

406

Deferred tax assets

49,724

25,736

Valuation of property, plant and equipment

(27,754)

(28,445)

Valuation of intangible assets

(1,753)

(1,827)

Others

(542)

(1,172)

Deferred tax liabilities

(30,049)

(31,444)

Net deferred tax assets/(liabilities)

19,675

(5,708)

As of 30 June 2022, deferred tax assets in the amount of USD 35,881 thousand are expected to be recovered or settled within twelve months after

the reporting period (30 June 2021: USD 12,570 thousand).

As of 30 June 2022, based upon projections for future taxable income over the periods in which the taxable temporary differences are anticipated

to reverse, management believes it is probable that the Group will realize the benefits of deferred tax assets of USD 14,564 thousand (2021:

USD 11,810 thousand) recognized with respect to tax losses carried forward by the subsidiaries. The amount of future taxable income required to

be generated by the Subsidiaries to utilize the tax benefits associated with the tax loss carried forward is approximately USD 80,911 thousand

(2021: USD 65,611 thousand). However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of

taxable income are revised.

As of 30 June 2022, unrecognized deferred tax assets arising from tax losses carried forward by the Group’s subsidiaries amounted to USD 5,529

thousand (30 June 2021: USD 5,694 thousand).

The Group does not recognize a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries as it is able

to control the timing of the reversal of such temporary differences and it is probable that they will not reverse in the foreseeable future.

Certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policy. The following is an analysis of the

deferred tax balances (after offset) as they are presented in the Consolidated Statement of Financial Position:

As of

30 June 2022

As of

30 June 2021

Deferred tax assets

41,568

15,098

Deferred tax liabilities

(21,893)

(20,806)

Net deferred tax assets/(liabilities)

19,675

(5,708)

27. Revenue

The Group’s revenue was as follows:

For the year ended

30 June 2022

For the year ended

30 June 2021

Revenue from agriculture commodities merchandizing

2,743,079

2,672,636

Revenue from edible oils sold in bulk, meal and cake

2,314,603

2,704,993

Revenue from bottled sunflower oil

209,475

172,495

Revenue from farming

38,967

26,899

Revenue from transshipment services

16,999

14,087

Revenue from grain silo services

8,422

3,690

Total

5,331,545

5,594,800

Revenue is obtained principally from the sale of commodities, recognized once the control of the goods has transferred from the Company to the

customer. Revenue derived from freight, storage and other services is recognized over time as the service is rendered. Disaggregated revenue for

each reportable segment is presented in the Note 6.

The transaction price allocated to unsatisfied performance obligations as of 30 June 2022 is USD 434 thousand (30 June 2021: USD 7,607

thousand). This amount represents revenue from carriage, freight and insurance services under CIF/CFR Incoterms contracts which are to be

executed in July 2022, when the goods are delivered to the point of destination and under which the Group has already recognized revenue from

sale of goods at a point in time as of 30 June 2022.

For the year ended 30 June 2022, hedge accounting realized result decreased Revenue from edible oils sold in bulk, meal and cake by USD

23,952 thousand (30 June 2021: USD 52,354 thousand).

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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28. Cost of Sales

Cost of sales was as follows:

For the year ended

30 June 2022

For the year ended

30 June 2021

Cost of goods for resale and raw materials used

4,117,421

4,245,339

Shipping and handling costs

366,778

365,389

Amortization and depreciation

120,790

111,419

Payroll and payroll related costs

65,051

74,384

Rental payments

1,818

10,656

Other operating costs

20,115

14,685

Total

4,691,973

4,821,872

For the year ended 30 June 2022 result on operations with commodity futures, options and unrealized forwards, included within Cost of goods for

resale and raw materials used line, decreased Cost of sales for the amount of USD 204,835 thousand (2021: USD 281,799 thousand decrease).

For details, please refer to Note 4.

29. Other Operating Income/(Expenses), net

Other operating income/(expenses), net was as follows:

For the year ended

30 June 2022

For the year ended

30 June 2021

Other operating income

Contracts wash-out (price difference settlement)

48,258

77,063

Stock-take

8,481

9,894

Demurrage, dispatch fees and other fines

4,979

2,464

Gain on operations with derivatives

—

10,552

Gain on operations with securities

—

5,387

Other operating income

1,976

5,908

Total

63,694

111,268

Other operating expenses

Loss on operations with securities

(33,227)

—

Loss on operations with derivatives

(11,483)

—

Total

(44,710)

—

Net other operating income

18,984

111,268

The Group enters wash-out contracts in order to reduce administrative time and cost, these contracts can be offset based on a mutual agreement

with the same partners who sold or purchased commodities.

30. General, administrative and selling expenses

General, administrative and selling expenses were as follows:

For the year ended

30 June 2022

For the year ended

30 June 2021

Payroll and payroll related costs

180,206

276,937

Audit, legal and other professional fees

11,392

9,874

Amortization and depreciation

8,500

5,012

Repairs and material costs

7,639

7,372

Taxes other than income tax

4,611

2,399

Business trip expenses

3,686

3,875

Bank services

2,644

2,577

Expense relating to leases of low-value assets

2,532

1,219

Communication expenses

1,693

1,663

Insurance

1,130

1,333

Other expenses

6,372

6,023

Total

230,405

318,284

Audit, legal and other professional fees for the year ended 30 June 2022 include the auditor’s remuneration in the amount of USD 706 thousand

and remuneration for non-audit services of USD 77 thousand (for the year ended 30 June 2021: USD 717 thousand and USD 294 thousand,

respectively). No consultancy services were provided by the auditors for the respective period.

31. Loss on Impairment of Assets

As a result of full-scale Russian military invasion of Ukraine, the Group suffered operational and logistic difficulties, namely temporarily suspension

of export through Ukrainian ports which resulted in the absence of active procurement, processing and export of grain and sunflower oil. Significant

changes in operating environment became triggering events and indicator for impairment testing of goodwill and other assets.

As the result of testing, the Group has recognized an impairment charge against goodwill, property, plant and equipment and intangible assets in

the amount of USD 47,677 thousand, USD 51,165 thousand and USD 27,107 thousand, respectively, belonging to the Oilseed Processing and

Farming CGUs (Note 19).

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Besides, the Group has recognized an impairment of assets classified as held for sale in the amount of USD 92,920 thousand (Note 15).

Also, the Group suffered impairment loss on cryptocurrency in the amount USD 34,075 thousand.

The Group recognized the write-off of inventories in the amount of USD 10,838 thousand, due to the suspension of export and subsequent expi-

ration date of the goods as well as destruction as a result of military actions.

Also, the Group created allowance for inventories located at the temporary occupied territories in the amount of USD 53,127 thousand.

32. Finance Costs and Income

Net finance costs were as follows:

For the year ended

30 June 2022

For the year ended

30 June 2021

Finance costs expensed

Interest on corporate bonds

(50,473)

(78,126)

Interest on lease liabilities

(42,074)

(44,803)

Interest expense on bank loans

(34,048)

(16,548)

Other finance costs

(3,954)

(8,232)

Total

(130,549)

(147,709)

Finance income

Interest received on financial assets held for cash management

10,732

4,908

Other financial income

590

1,042

Total

11,322

5,950

Net finance costs

(119,227)

(141,759)

33. Other Expenses, net

Other (expenses)/income, net was as follows:

For the year ended

30 June 2022

For the year ended

30 June 2021

Gain on disposal of property, plant and equipment

2,570

2,628

Fines and penalties (Note 35)

(1,360)

(1,959)

Social spending

(26,271)

(3,923)

Total

(25,061)

(3,254)

34. Transactions with Related Parties

Related parties are the Beneficial Owner and companies under control of the Beneficial Owner, the Group’s key management personnel, entities

under Key Management control and other related parties, which has significant influence over the reporting entity.

The Group had the following balances outstanding with related parties from sales or purchases of goods and services:

Related party

Statement of Financial Position line

Related party balances

as of 30 June 2022

Related party balances

as of 30 June 2021

Entities under Beneficial

Owner control

Trade accounts receivable, net

1,763

Other financial assets

8,849

12,037

Non-current financial assets

19,552

11,460

Trade accounts payable

768

9,644

Advances from customers and other current liabilities

20,000

998

Key management

Non-current financial assets

2,099

189

Advances from customers and other current liabilities

5,545

27,383

Other financial liabilities

964

—

Other non-current liabilities

37,970

—

Entities under Key

Management control

Other financial assets

18,304

769

Non-current financial assets

1,325

19,704

Other related parties

Trade accounts receivable, net

44,333

762

Prepayments to suppliers

6,590

—

Other financial assets

4,433

3,277

Non-current financial assets

11,324

6,331

Trade accounts payable

13,468

297

Advances from customers and other current liabilities

308

1,090

Other financial liabilities

15,015

The management of the Group has been provided with options to sale shares of the Holding to the Company according to a management incentive

plan adopted at the Extraordinary General Meeting of Shareholders held on 30 August 2021, which was initially recognized in equity and fair value

of which as of 30 June 2022 amounted to USD 35,370 thousand and were recognized in Other non-current liabilities (Note 2).

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Transactions with related parties are performed on terms equivalent to those that prevail in arm’s length transactions. The amount of outstanding

balances is unsecured and will be settled in cash. There have been no guarantees provided or received for any related party receivables or

payables. Loans provided at rates comparable to the average commercial rate of interest.

No provisions have been made for doubtful debts in respect of the amounts owed by related parties.

Transactions with related parties were as follows:

Related party

Statement of Profit and Loss line

Related party transac-

tions for the year ended

30 June 2022

Related party transac-

tion for the year ended

30 June 2021

Entities under Beneficial Owner control

Revenue

2,786

1,838

Cost of sales

(7,716)

(28,458)

Finance income

1,246

1,074

Key management

General, administrative and selling

expenses

(378)

(29,423)

Entities under Key Management control

Finance income

1,017

706

Other related parties

Revenue

43,945

137

Cost of sales

(690)

(402)

Finance income

1,876

529

General, administrative and selling

expenses

(704)

Other income/(expenses), net

559

499

Change of fair value of options provided to key management as of 30 June 2022 resulted in gain recognized in General, administrative and selling

expenses in the amount of USD 8,912 thousand.

The Group key management personnel are the members of the Board of Directors and management team. The remuneration of Directors and

other members of key management personnel recognized in the Consolidated Statement of Profit and Loss including salaries and other current

employee benefits amounted to USD 9,007 thousand (for the year ended 30 June 2021: USD 29,834 thousand). Members of the Board of Directors

and management team are not granted any pensions, retirement, or other long-term benefits by the Group.

35. Commitments and Contingencies

Retirement and Other Benefit Obligations

Employees of the Group receive pension benefits from the government in accordance with the laws and regulations of Ukraine. The Group’s

contributions to the State Pension Fund for the year ended 30 June 2022 were USD 17,511 thousand (2021: USD 20,901 thousand).

The Group is required to contribute a specified percentage of the payroll to the Pension Fund to finance some post-retirement benefits of its former

employees. The only obligation of the Group with respect to this pension plan is to make the specified contributions. As of 30 June 2022 and 2021,

the Group was not liable for any significant supplementary pensions, post-retirement health care, insurance benefits or retirement indemnities to

its current or former employees.

Capital Commitments

As of 30 June 2022, the Group had commitments under contracts with a group of suppliers for a total amount of USD 32,595 thousand, mostly for

the construction of an oilseed crushing plant (30 June 2021: USD 50,062 thousand, mostly for the construction of an oilseed crushing plant).

Contractual Commitments on Sales

As of 30 June 2022, the Group had entered into commercial contracts for the export of 838,000 tons of grain, 50,572 tons of sunflower oil and

75,676 tons of sunflower meal and other related products, corresponding to an amount of USD 244,633 thousand, USD 73,032 thousand and USD

32,733 thousand, respectively, in contract prices as of the reporting date.

As of 30 June 2021, the Group had entered into commercial contracts for the export of 3,296,959 tons of grain, 198,077 tons of sunflower oil and

305,642 tons of sunflower meal and other related products, corresponding to an amount of USD 784,281 thousand, USD 220,702 thou-sand and

USD 112,012 thousand, respectively, in contract prices as of the reporting date.

Taxation and Legal Issues

In April 2012, the Group entered into a call option agreement to acquire Stiomi Holding, a farming company located in the Khmelnytskyi region of

Ukraine. As of 30 June 2022, the consideration paid for Stiomi Holding by the Group comprised USD 33,472 thousand. A final payment was due

and payable only after fulfilment of certain conditions to the satisfaction of the Group and subject to rights of set-off in respect of claims against the

sellers. The Group submitted several claims to the sellers (the “Stiomi Sellers”) in respect of the non-fulfilment of the Stiomi Sellers’ obligations. In

December 2012, the Group received a request for arbitration from the Stiomi Sellers in which the Stiomi Sellers claimed amounts alleged to be

payable to them. The arbitral tribunal delivered its award in late February 2018. That award was in part subject to challenge by the Group in the

High Court in London. In March 2019, the High Court remitted the award to the tribunal for reconsideration in certain respects and a further hearing

took place before the tribunal in September 2019. Pursuant to the tribunal’s revised award, which was delivered in December 2019, the Group is

required to pay the Stiomi Sellers an aggregate amount of approximately USD 30,300 thousand.

The Stiomi Sellers have made further claims against the Group for interest on the amounts due to them at the rate of 10% per annum (corresponding

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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to USD 5,944 per day since the date of the initial arbitral award in late February 2019), and have initiated court proceedings in Luxembourg and

Switzerland in respect of such interest due, as well as took actions to enforce the payment of the arbitral award. The Group disputes the Stiomi

Seller’s claims for interest due.

In Switzerland, the Stiomi Sellers have obtained attachment orders against certain bank accounts of the Group. The proceeds of these attachments

were allocated to the Stiomi Sellers by the debt collection office. The amount frozen, however, did not exceed some tens of thousands Swiss

Francs. The Stiomi Sellers have also obtained an attachment on intergroup receivables. Furthermore, former counsel to the Stiomi Sellers has

also obtained a Swiss attachment order against one of the Stiomi Sellers on the basis of unpaid fees in an amount of close to EUR 6,000 thousand.

In Luxembourg, the Stiomi Sellers have initiated attachment proceedings to put in place conservatory measures against Kernel’s bank accounts.

In early 2020, a third party brought claims both before Luxembourg and Ukrainian courts asserting that one of the Stiomi Seller’s claims has been

assigned to them, which the Stiomi Sellers dispute. As a result of these conflicting claims and proceedings, the Group has been unable to discharge

its payment obligations in respect of the arbitral award to the Stiomi Sellers, pending the resolution of these issues.

Facing such uncertainty as to the identity of its creditors, the Group filed a request for discharge payment in March 2020 before the Swiss courts.

After having heard all the parties involved, the Swiss court have rendered a judgement in June 2021 granting the Group’s prayers for relief.

Following an appeal launched by the third party, the above-mentioned judgement has been confirmed and became enforceable in late January

2022.

On 16 December 2020, the Stiomi Sellers filed a bankruptcy petition against Kernel in Luxembourg. The judgment was rendered on 15 January

2021 in favor of Kernel as the Luxembourg court agreed that the conditions of bankruptcy were not fulfilled in the case at hand.

Meanwhile, criminal investigations have been conducted in Ukraine against this third-party. In this context, it appears that the investigators have

come to the conclusion that the signature of Mrs. Stadnyk on the power of attorney used for the alleged assignment was genuine. The Stiomi

Sellers challenge this finding.

On the other hand, the Group has discovered, in September 2021, that some of the Stiomi Sellers initiated criminal proceedings against the third

party, claiming that the assignment agreement is a forged document. Kernel also discovered that the Stiomi Sellers have extended their complaint

against Kernel and possibly Kernel officers. Swiss jurisdiction has been confirmed and the investigation appears to be ongoing. So far, Kernel has

not been auditioned and has no possibility to access the file. Kernel has provided to the Public Prosecutor of Geneva a spontaneous letter with the

purpose of clarifying facts and to demonstrate that accusations against the Group are unfounded/contradicted by robust evidence.

From a civil perspective, as of 30 June 2018, the Group recognized a provision regarding the arbitral and the related proceedings. The provision

represents the directors’ best estimate of the maximum future outflow that will be required in respect of the award. The carrying amount of the

payables for legal claims was USD 38,387 thousand as of 30 June 2022 (2021: USD 36,217 thousand), and related expenses in the amount of

USD 2,170 thousand were recognized within the year ended 30 June 2022 (2021: USD 2,170 thousand) and included within the line “Other

expenses, net”.

As of 30 June 2022, one of the Group’s subsidiaries in Switzerland has uncertain tax positions which may result in economic outflow although

timing of this is uncertain due to early stage of this matter.

As of 30 June 2022, the Group’s management assessed its maximum exposure to tax risks related to VAT refunds claimed by the Group, the

deductibility of certain expenses for corporate income tax purposes and other tax issues for total amount of USD 97,287 thousand (30 June 2021:

USD 101,601 thousand ), from which USD 82,260 thousand related to VAT recoverability (30 June 2021: USD 87,687 thousand), USD 14,777

thousand related to corporate income tax (30 June 2021: USD 13,578 thousand) and USD 250 thousand related to other tax issues (30 June 2021:

USD 328 thousand ).

As of 30 June 2022, companies of the Group had ongoing litigations with the tax authorities concerning tax issues for USD 89,796 thousand (30

June 2021: USD 21,702 thousand), included in the abovementioned amount. Out of this amount, USD 4,787 thousand relates to cases where

court hearings took place and where the court in either the first or second instance has already ruled in favor of the Group (30 June 2021: USD

4,507 thousand). Management believes that based on the past history of court resolutions of similar lawsuits by the Group, it is unlikely that a

significant settlement will arise out of such lawsuits and no respective provision is required in the Group’s financial statements as of the reporting

date.

Ukraine’s tax environment is characterized by complexity in tax administration, arbitrary interpretation by tax authorities of tax laws and regulations

that could increase fiscal pressure on taxpayers. Inconsistent application, interpreting, and enforcement of tax laws can lead to lawsuits resulting

in the imposition of additional taxes, penalties, and penalty interest.

Key aspects of the Ukrainian tax system are the following:

• Ukraine operates a classic corporate income tax system, under which taxable profit of companies (i.e., financial profit adjusted by tax differences)

is subject to 18% corporate income tax (“CIT”).

• Transfer pricing rules apply to transactions with related non-residents and “low-tax” non-residents (i.e., non-residents, taxed domestically at a

significantly lower corporate income tax rate than the Ukrainian tax rate of 18%), subject to a company’s minimum income threshold of UAH 150

million and turnover threshold with each separate non-resident of UAH 10 million.

• Domestic supply of goods and services, as well as the import of goods and certain services, are subject to value-added tax at the standard rate

of 20%. Reduced tax rate of 0% applies to the export of goods from Ukraine. Starting from March 2021, also 14% tax rate applies to the domestic

supply and import of certain agricultural commodities.

• Payment of passive income (i.e., interest, royalties, dividends etc.) to non-residents is subject to withholding tax at a standard 15% rate unless

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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double tax treaties or the Tax Code of Ukraine provide another tax rate.

• Agricultural producers of raw materials are allowed to apply a simplified tax system, given that at least 75% of their income is attributable to

sales of agricultural raw materials produced by such company. Under the simplified tax system, companies are subject to a fixed tax, which

depends on the type, location and monetary value of farmland used by such companies.

• In March 2022 significant changes to the Tax Code of Ukraine have been introduced as a result of the war and adoption of Marital Law in

Ukraine. Amongst others, these changes released the taxpayers from financial liability for any tax and other violations of legislation, the compli-

ance with which is monitored by the customs and tax authorities, if such violations occur as a result of the force majeure circumstances (the war

following the military aggression of the Russian Federation). At the same time, such obligations must be fulfilled immediately after the termination

of the force majeure circumstances. The Law has also temporarily suspended certain types of tax audits, including transfer pricing audits. In

May 2022 another Law has been adopted partially reinstating the taxpayers’ obligations and the tax authorities’ right to initiate tax audits.

• During Martial Law, taxpayers may opt to voluntarily transfer from general taxation regime to the special tax regime whereby the tax rate of 2%

from revenue is applied. Once Marital Law is no longer in force, taxpayers having chosen the special regime will be obliged to return to the

general taxation regime.

• In February 2022 the National Bank of Ukraine imposed restrictions on the purchase of foreign currency and cross-border cash transfers in

import transactions. Temporarily it has been prohibited to purchase foreign currency for executing the payments for the import of certain goods,

services, work, intellectual property rights, apart from the payments for goods from the so called “critical import” list. In July 2022 these restrictions

have been eased, but still continue to apply to certain transactions.

• On 18 January 2022 the Ministry of Finance of Ukraine introduced the new Order “On the approval of procedures of determining “arm’s length”

principle in transactions with commodities”. In particular, the Order set the priority of application of the comparable uncontrolled price method to

related party transactions in soft commodities, including various agriproducts. It was also specified that the taxpayers trading in soft commodities

are obliged to use the so called “quoted prices” taken from the sources of information recommended by the fiscal authorities. Certain clarifications

have also been provided on the performance of functional analysis, the determination of the tested party for other transfer pricing methods,

comparability adjustments, etc. New rules will take effect from 1 January 2023.

• Starting from 7 March till 21 July 2022 the special rules which determine the procedures of VAT refund in Ukraine were suspended. During this

period the taxpayers were unable to declare and obtain VAT refund. The process is still difficult due to the shortage of funds in the state budget.

• The earlier adopted CFC rules came into force from 1 January 2022. In particular, from this date the Ukrainian resident individuals or legal

entities controlling CFCs are obliged to submit notifications to the tax authorities in case of an acquisition / alienation of a share in a CFC, set up

of new CFC or liquidation of the existing CFC, commencement / termination of actual control over the CFC and in some other cases. The

calendar year 2022 is the first period for the submission of the CFC report declaring its profits.

• Starting from 4 June 2022, the tariff restrictions provided in the EU-Ukraine Association Agreement have been suspended, namely all tariff

quotas for agricultural products; antidumping duties; global safeguards actions against Ukrainian goods.

• Ukraine ratified the Protocol amending the double tax treaty with United Arab Emirates. The Protocol entered into force on January 1, 2022 and,

among other changes, modified withholding tax rates applied to the payments of royalties (with the increase from zero rate on certain IP rights

to 5-10%) and interest income (5% instead of 3%). Also, the Protocol introduces the principal purpose test.

• Diia City regime providing for special tax benefits for IT companies was adopted in Ukraine. Among other novelties, this regime introduces certain

protection from excessive interference from state bodies and control over IT business, simplification of formalities with hiring IT specialists

(including special “gig-contracts”), reduced income tax and payroll tax rates for qualifying IT businesses.

36. Financial risk management

Capital Risk Management

The Group manages its capital, which is attributable to equity holders to ensure that entities in the Group will be able to continue as a going concern

while maximizing return to shareholders through a combination of debt and equity capital. Management considers the cost of capital and risks

associated with each class of capital. Based on recommendations from management, the Group balances its overall capital structure through the

payment of dividends, new share issues, repurchase of own shares as well as the issue of new debt or the redemption of existing debt. The Group

monitors capital based on the carrying amount of equity, borrowings less cash and cash equivalents as presented in the statement of financial

position

The Group is not subject to any externally imposed capital requirements, except for bank borrowing covenants imposed by external lenders

Gearing Ratio

Management reviews the capital structure of the Group, taking into consideration the seasonality of the activity of the Group. As part of this review,

management considers the cost of capital and the risks associated with each class of capital. Following its listing on the WSE, the Group’s man-

agement considers that the gearing ratio should not exceed 150%.

As of

30 June 2022

As of

30 June 2021

Equity

1,683,188

1,946,150

Debt liabilities

(Notes 23, 24, 25)

1,935,289

1,409,625

Less cash and cash equivalents (Note 9)

(447,625)

(574,040)

Net debt

1,487,664

835,585

Net debt liabilities to capital

88.4%

42.9%

Financial Risk

The Group is exposed to financial risk in the result of normal course of business and include following risks:

• Credit risk

Equity includes issued capital, share-premium reserve, additional paid-in capital, revaluation reserve, equity-settled employee benefits reserve, retained earnings, other reserve and translation reserve

attributable to Kernel Holding S.A. shareholders.

Debt includes short-term and long-term borrowings, obligations under finance leases, bonds issued and accrued interest. Debt liabilities do not include the liabilities associated with assets held for sale.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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• Liquidity risk

• Market risk

Risk management policies have been established to identify, assess and analyze the risks faced by the Group, to manage and continuously

improve an effective risk management and monitoring system, spreading the culture of decision-making in terms of risks, their valuation and

likelihood of occurrence. The Group coordinates roles and participants through training, management standards and procedures.

Credit Risk

Credit risk is the risk of financial loss to the Group if counterparties may not be able to settle its contractual obligations due to the Group within their

agreed payment terms.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The characteristics of the Group’s

customer base, including the default risk of the industry and country, in which the major customers operate, has less of an influence on credit risk.

The management of the Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before

the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes assessment of the credit quality of the

customer, taking into account its financial position, past experience and other factors. Sales limits are established for each customer, which repre-

sent the maximum open amount without requiring approval from the management of the Group. These limits are reviewed annually. Customers

that fail to meet the Group’s benchmark for creditworthiness may transact with the Group only on a prepayment basis. To reduce non-payment risk

in international markets, the Group presents title documents via banking channels and uses payment instruments such as letters of credit, insurance

arrangements and bank guarantees. The Group holds collaterals against loans provided to farmers in the form of future harvest and immovable

property in the quantity that covers loans provided according to market price. The Group's applied policy about expected credit losses which is

disclosed in the Note 9 for all trade receivables. Other financial assets at amortized cost include loans to related parties, key management personnel

and other receivables have a low credit risk.

The Group’s most significant customer is an international customer, who accounted for USD 43,708 thousand out of total trade accounts receivable

as of 30 June 2022 (30 June 2021: one international customer accounted for USD 88,428 thousand).

Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by

maintaining adequate cash and cash equivalents, as well as availability of funding through the adequacy of the banking facilities by continuously

monitoring forecasted and actual cash flows and by matching the maturity profiles of financial assets and liabilities. Management diversifies funding

sources to ensure that sufficient liquidity is maintained to meet liquidity requirements

As of 30 June 2022, the carrying amount of the Group’s maximum exposure to financial obligations (including lease liabilities) was

USD 2,369,576 thousand (30 June 2021: USD 1,706,018 thousand).

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods as of

30 June 2022 and 2021. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on

which the Group can be required to pay. The tables include both interest and principal cash flows.

Carrying

amount

Contractual

cash flows

Less than 1

year

1–2 years

2–5 years

More than 5

years

30 June 2022

Non-derivative financial liabilities

Trade accounts payable

161,342

(161,342)

—

Borrowings (Note 23)

1,093,087

(1,115,820)

—

Bonds issued (Note 25)

602,650

(760,125)

—

Other financial liabilities

105,407

(105,407)

—

Other non-current liabilities

38,871

(38,871)

—

(451)

(35,820)

(2,600)

Total

2,001,357

(2,181,565)

(2,142,694)

(451)

(35,820)

(2,600)

Derivatives

Derivative financial instruments

23,130

(23,130)

—

Total

23,130

(23,130)

—

30 June 2021

Non-derivative financial liabilities

Trade accounts payable

150,061

(150,061)

—

Short-term borrowings (Note 23)

13,888

(13,903)

—

Long-term borrowings (Note 23)

249,455

(281,555)

(29,745)

(36,747)

(113,242)

(101,821)

Bonds issued (Note 25)

821,790

(1,031,632)

(271,507)

(39,750)

(390,000)

(330,375)

Other financial liabilities

185,160

(185,160)

—

Other non-current liabilities

1,216

(1,216)

—

(608)

—

Total

1,421,570

(1,663,527)

(650,376)

(77,105)

(503,850)

(432,196)

Derivatives

Derivative financial instruments

93,758

(93,758)

—

Total

93,758

(93,758)

—

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The concentration of liquidity risk is limited due to different repayment terms of financial liabilities and sources of borrowing facilities.

Market Risk

The Group’s activities expose it primarily to the market risks of changes in foreign currency exchange rates, interest rates and commodity price

risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the

return on risk.

Currency Risk

The functional currency of the majority of the Group’s Subsidiaries is their local currency, except for businesses engaged in the production and

sale of sunflower oil and transshipment services, for which USD was selected as the functional currency.

Currency risk is a risk of financial impact due to exchange rate fluctuations related to transactions and balances in currency other than functional

currency. The Group enters into such transactions denominated in other currencies, which include capital expenditures, operating expenses,

certain sales of goods and recognized assets and liabilities denominated in a currency that is not the functional currency of entity. Exposure of

currency risk are managed by utilizing currency forward contracts and fulfill comparative analysis between subsidiaries.

Management of the Group mitigates the influence of currency risk in Ukrainian hryvnia through export sales expressed in USD and EUR: for the

year ended 30 June 2022, out of total sales USD-denominated sales stated USD 4,804,274 thousand, and EUR-denominated sales were in the

amount of USD 308,052 thousand. Export sales represented 95.4% of the total sales volume.

Interest and principal on borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group,

primarily in USD. This provides the Group with a natural hedge against currency risk and no derivatives are required to cover such risk.

The table below covers UAH and USD denominated assets and liabilities carried by Subsidiaries having balances in currencies other than functional

currencies.

The Group’s exposure to foreign currency risk including the balances outstanding between the Group’s companies as of 30 June 2022 and 2021

was as follows:

30 June 2022

30 June 2021

UAH

USD

UAH

USD

Cash and cash equivalents

2,594

2,551

1,395

5,333

Trade accounts receivable

74,149

116,267

33,436

62,706

Other financial assets

14,506

—

54,010

—

Trade accounts payable

(59,423)

(2)

(123,359)

(920)

Other financial liabilities

(312,053)

—

(429,078)

(214)

Current portion of lease liabilities (Note 24)

(1,226)

(828)

(302)

(1,070)

Other non-current liabilities

(417)

—

(458)

—

Borrowings from Ukrainian subsidiary of European bank (Note 23)

(110,762)

—

(5,915)

—

Borrowings from Ukrainian bank (Note 23)

(44,069)

—

Borrowings European Bank (Note 23)

—

(18,358)

—

(87,230)

Lease liabilities (Note 24)

(12,147)

(114)

(1,959)

(803)

Net exposure

(448,848)

99,516

(472,230)

(22,198)

The following table details the Group’s sensitivity to a 10 % change of the UAH against the USD would prompt a fluctuation in the equity and profit

and loss account by the amounts shown below. This sensitivity analysis assumes that all other variables, in particular interest rates, remain con-

stant. The sensitivity analysis includes only outstanding monetary items denominated in currency other than functional currency.

A strengthening/depreciation of the Ukrainian hryvnia against US dollar at 30 June would have affected the measurement of financial instruments

denominated in a foreign currency and affected profit or loss before income tax by the amounts shown below:

30 June 2022

30 June 2021

Strengthening

Depreciation

Strengthening

Depreciation

UAH (10% movement)

(53,932)

55,942

(45,205)

44,757

Interest Rate Risk

The Group’s main interest rate risk arises from bank borrowings and lease liabilities with variable rates, which expose the group to cash flow

interest rate risk.

The sensitivity analysis below has been determined based on exposure to interest rates for financial liabilities at the end of the reporting period.

For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was

outstanding for the whole year. A 100-basis point (‘bp’) increase or decrease was used when reporting interest rate risk internally to key manage-

ment personnel and represents management’s assessment of reasonably possible changes in interest rates.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The interest rate profile of the Group’s interest-bearing financial instruments and its sensitivity to increase or decrease of variable interest rate was

as follows:

Carrying

amount as of

30 June 2022

Gain/(loss) on profit for the year

(before income tax) due to change

of variable rate

Carrying

amount as of

30 June 2021

Gain/(loss) on profit for the year

(before income tax) due to change

of variable rate

100 bp higher

100 bp lower

100 bp higher

100 bp lower

Fixed rate

1,288,027

—

1,149,104

—

Variable rate

755,510

(7,555)

7,555

260,521

(2,605)

2,605

LIBOR

585,920

(5,859)

5,859

260,521

(2,605)

2,605

SOFR

157,118

(1,571)

1,571

—

COF

12,472

(125)

125

—

Total

2,043,537

(7,555)

7,555

1,409,625

(2,605)

2,605

The Group does not use any derivatives to manage interest rate risk exposure. The Group manages its interest rate risk by having a balanced

portfolio of fixed and variable rate loans and borrowings.

Commodity Price Risk

The Group exposes price volatility of the sunflower oil, agricultural products produced and agricultural commodities. The Group manages a signif-

icant part of this exposure through derivative transaction to limit this risk. The Group hedged commodity price risk exposure arising from the

changes in sunflower oil market price using forward contracts till the beginning of full-scale military actions and ceasing of delivery through Ukrainian

Black Sea ports. The Group also enters into the other forward contracts in relation to mitigate risk for the next 12 month that do not satisfies the

requirements for the hedge accounting. They are subject to the management risk policy and accounted as held for trading, with gain and loss

recognized in profit or loss.

As of the year ended 30 June 2022, accumulated loss resulted from change in fair value of hedging instruments under cash flow hedge accounting

was fully absorbed due to interruption of hedge accounting mostly as a result of full-scale Russian invasion into Ukraine (30 June 2021: USD 1,736

thousand). The Other reserves included cash flow hedge reserve representing the cumulative amount of gains and losses on hedging instruments

deemed effective in cash flow hedges, which is attributable to the shareholders of the Group. The remaining part of cash flow hedge reserve is

included in non-controlling interests. There were no derivative financial instruments outstanding as at 30 June 2022. The fair value of expired

commodity price contract as well the hedged item is recorded in Revenue.

The Group’s risk management strategies are aligned with the requirements of IFRS 9 and are thus the designated derivatives are treated as cash

flow hedges under IFRS:

Year ended

30 June 2022

Year ended

30 June 2021

Cash flow hedge reserve at the beginning of the period

(1,736)

(5,644)

Gain arising on changes in fair value of hedging instruments during the period

57,797

55,713

(Loss)/Gain arising on hedges ineffective-ness

(21,790)

220

Loss reclassified to profit or loss – hedged item has affected profit or loss

(23,952)

(52,353)

(Loss)/Gain reclassified to profit or loss – forecast transaction no longer expected to occur

(10,319)

328

Cash flow hedge reserve at the end of the period

—

(1,736)

The Group measures and limit price risk using a Value at Risk measure for physical marketing exposures and related derivatives instruments.

Value at Risk (VaR) is a statistical estimate of the potential loss in value of positions due to adverse market movements. The companies use VaR

approach based on a one-day time horizon with 95 percent confidence level utilizing a Log-Normal assumption of Returns. Parameters are esti-

mated using an Exponentially Weighted Moving Average over a 75 days period with a weight of 0.94. Market risk VaR was USD 6,897 thousand

as of 30 June 2022 (30 June 2021: USD 5,538 thousand).

The Group’s VaR should be interpreted in light of the limitations of the methodologies used. These limitations include the following:

• VaR model does not capture the liquidity of different risk positions and therefore does not estimate potential losses if the company liquidates

large positions over a short period of time.

• VaR is based on historical data may not provide the best estimate of the joint distribution of risk factor changes in the future and may fail to

capture the risk of possible extreme adverse market movements which have not occurred in the historical window used in the calculations.

37. Financial Instruments

The following tables gives information on the carrying and fair values of the financial instruments. Fair value is the price that would be received to

sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measure-

ment is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset

or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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As at 30 June 2022 and 2021, the financial assets and liabilities are presented by class in the tables below at their carrying values:

As at 30 June 2022

As at 30 June 2021

Amortized

cost

FVTPL

Total

Amortized

cost

FVTPL

Total

Assets

Cash and cash equivalents (Note 9)

447,625

—

447,625

574,040

—

574,040

Trade accounts receivable (Note 0)

142,738

—

142,738

381,124

—

381,124

Other financial assets (Note 14) of which

123,727

—

123,727

157,144

—

157,144

Margin account with brokers

77,136

—

119,376

—

Loans granted

43,760

27,535

—

Short-term bank deposits

—

3,680

—

Other financial assets

2,831

—

6,553

—

Other financial assets (Note 14) of which

—

82,084

—

137,012

Derivative financial instruments

—

48,879

—

130,480

Corporate and government bonds

—

33,205

—

6,532

Non-current financial assets

45,019

7,513

52,532

38,809

7,513

46,322

As at 30 June 2022

As at 30 June 2021

Amortized

cost

FVTPL

Total

Amortized

cost

FVTPL

Total

Liabilities

Trade accounts payable

161,342

—

161,342

150,061

—

150,061

Borrowings (Note 23)

1,093,087

—

1,093,087

263,343

—

263,343

Bonds issued and interest accrued (Note 25)

602,650

—

602,650

821,790

—

821,790

Other financial liabilities (Note 22) of which

105,407

—

105,407

185,160

—

185,160

Payable for legal claims

38,387

—

36,217

—

Payable from profit-sharing arrangement

32,626

—

133,802

—

Accounts payable for property, plant and equipment

7,884

—

13,199

—

Other current liabilities

26,510

—

1,942

—

Other financial liabilities (Note 22) of which

—

23,130

—

93,758

Derivative financial instruments

—

23,130

—

93,758

Other non-current liabilities

38,871

—

38,871

1,216

—

1,216

Information about the gains and losses on derivatives within Other financial assets and liabilities at FVTPL is recognized within Revenue and Cost

of sales and disclosed in Notes 27 and 28. There were no gains and losses related to other assets and liabilities at FVTPL during the year ended

30 June 2022 and 2021.

The following table below represents comparison of carrying amounts and fair value of the financial instruments for which they differ:

As of 30 June 2022

As of 30 June 2021

Financial liabilities

Carrying amount

Fair value

Carrying amount

Fair value

Bonds issued (Note 25)

602,650

319,800

821,790

869,180

Due to the defined short-term nature of the borrowings, as of 30 June 2022, their carrying amount is considered to be approximately the same as

their fair value. The fair value was calculated based on cash flows discounted using a current lending rate that is within level 2 of the fair value

hierarchy.

The fair value of Bonds issued was estimated based on directly observable quotations within Level 2 of the fair value hierarchy.

Derivative instruments are carried at fair value for which the Group evaluates the quality and reliability of the assumptions and data used to measure

fair value in the two hierarchy levels, Level 1 and 2, as prescribed by IFRS 13 Fair Value Measurement. Fair values are determined in the following

ways: externally verified via comparison to quoted market prices in active markets (Level 1) or by observable quoted prices sourced from exchanges

or brokers in active markets for identical assets or liabilities (Level 2).

Valuation of the Group’s commodity physical forward contracts categorized within level 2 is based on observable quoted prices sourced from

exchanges or traded reference indices in active markets for identical assets or liabilities and broker mark ups derived from observable quotations

representing differentials, as required, including geographic location and local supply and demand.

FVTPL – Fair value through profit and loss.

Including accrued interests

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Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The following table below represents the fair values of the derivative financial instruments including trade related financial and physical forward

purchase as at 30 June 2022 and 2021:

As at 30 June 2022

As at 30 June 2021

Level 1

Level 2

Total

Level 1

Level 2

Total

Other financial assets

Forwards

—

10,448

—

63,257

Futures/Options

38,431

—

38,431

61,901

—

61,901

Derivatives held for hedging

—

5,322

Other financial liabilities

Forwards

—

22,185

—

92,592

Futures/Options

945

—

945

913

—

913

Derivatives held for hedging

—

253

The major part of other financial liabilities has contractual maturity due within 6 months.

Cash and cash equivalents and short-term borrowings are classified as level 2 fair values in the fair value hierarchy due to the inclusion of directly

and indirectly observable inputs. Trade receivables, other current assets and trade accounts payable, other current liabilities are classified as level

3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk.

For the year ended 30 June 2022, the fair value of other non-current assets recognized at amortized cost was estimated by discounting the

expected future cash outflows by a market rate of interest for bank borrowings of 5-10% that is within level 3 in the fair value hierarchy due to the

inclusion of unobservable inputs including counterparty credit risk.

For the year ended 30 June 2021, fair value of other non-current liabilities is classified as level 3 fair values in the fair value hierarchy due to the

inclusion of unobservable inputs including counterparty credit risk.

There were no transfers between levels of fair value hierarchy.

There were no changes in the valuation technique since the previous year.

Offsetting of financial assets and liabilities

As of 30 June 2022, other financial assets include collaterals for derivatives in the amount of USD 53,985 thousand (30 June 2021:

USD 72,995 thousand). The cash collateral does not meet the offsetting criteria in IAS 32, but it can be set off against the net amount of the

derivative asset and derivative liability in the case of default and in accordance with associated collateral arrangements.

The derivative asset and liability meet the offsetting criteria per IAS 32. Consequently, the gross derivative liability is set off against the gross

derivative asset, on a net basis in the consolidated statement of financial position only if there is a legally enforceable right to set off the recognized

amounts and intention either to settle on a net basis, or to realize the asset and settle the liabilities simultaneously.

The financial assets and liabilities, which meet the criteria of offsetting as at 30 June 2022 were as follows:

Amounts set off in the statement of

financial position

Amounts not set off in the

statement of financial position

Total as presented

in the consolidated

statements of

financial position

Gross amount of

financial assets

Gross amount of

financial liabilities

Net amount

Margin account

with brokers

Not under master

netting agreements

Derivative assets

144,029

(105,598)

38,431

—

10,448

48,879

Derivative liabilities

1,717

(2,662)

(945)

—

(22,185)

(23,130)

Margin account with brokers

—

77,136

—

77,136

Payable to brokers

—

Total

145,746

(108,260)

37,486

77,136

(11,737)

102,885

The financial assets and liabilities, which meet the criteria of offsetting as at 30 June 2021 were as follows:

Amounts set off in the statement of

financial position

Amounts not set off in the

statement of financial position

Total as presented

in the consolidated

statements of

financial position

Gross amount of

financial assets

Gross amount of

financial liabilities

Net amount

Margin account

with brokers

Not under master

netting agreements

Derivative assets

164,084

(102,190)

61,894

—

68,586

130,480

Derivative liabilities

1,195

(2,108)

(913)

—

(92,845)

(93,758)

Margin account with brokers

—

119,376

—

119,376

Payable to brokers

—

(1,131)

—

(1,131)

Total

165,279

(104,298)

60,981

118,245

(24,259)

154,967

38. Earnings per Share

Basic earnings per share are computed by dividing net income from continuing and discontinued operations available to ordinary shareholders by

the weighted-average number of ordinary shares outstanding (as of 30 June 2022 and 2021, 77,429,230 and 84,031,230, respectively shares and

weighted average number of ordinary shares in the number of 80,187,230 and 84,031,230 shares for the periods then ended, respectively),

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Kernel Holding S.A. Annual Report and Accounts 30 June 2022

145

Notes to the Consolidated Statements continued

for the year ended 30 June 2022 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

excluding any dilutive effects of stock options. Diluted earnings per share are computed in the same way as basic earnings per share, except that

the weighted-average number of ordinary shares outstanding is increased to include additional shares from the assumed exercise of stock options.

The number of additional shares is calculated by assuming that outstanding stock options, except those which are not dilutive, were exercised and

that the proceeds from such an exercise were used to acquire ordinary shares at the average market price during the reporting period. For calcu-

lating diluted earnings per share, an average number of 80,187,230 ordinary shares is taken into account (30 June 2021: 84,031,230).

39. Subsequent Events

In addition to the subsequent events disclosed in Notes 3 and 4 there were the following subsequent events.

On 15 July 2022, the Company received a written notice from Mrs. Pieternel Boogaard, a non-executive director, about her resignation from the

Board of Directors of the Company, which was approved by the Board of Directors on 14 September 2022.

On 14 September 2022, the Board of Directors also approved the co-optation of Mr. Mykhaylo Mishov as a new non-executive director of the

Company in replacement of Mrs. Pieternel Boogaard until ratification thereto by the next general meeting of shareholders of the Company.

On 23 September 2022, the Extraordinary General Meeting of Shareholders was held. According to one of the adopted resolutions, the Company

approved the creation of an authorized share capital of the Company, excluding the current issued share capital, of an amount of USD 5,704 thou-

sand consisting of 216,000,000 shares without nominal value.

During July-October 2022, the Group settled the current portion of capital expenditure financing in the amount of USD 12,744 thousand and part

of the working capital financing in the amount of USD 145,760 thousand. Additionally, the Group obtained USD 32,564 thousand from Ukrainian

banks within new loan agreements.

Kernel Holding S.A. Annual Report and Accounts 30 June 2022

146

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Corporate information

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Headquarters

3 Tarasa Shevchenka Lane,

Kyiv, Ukraine, 01001

Tel.: +38044 4618801

Fax: +38044 4618864

Registered office

Kernel Holding S.A.

9, rue de Bitbourg

L-1273 Luxembourg

Registered number

B109173

Auditors

PwC Société cooperative,

2, rue Gerhard Mercator B.P.

L-1014 Luxembourg

Investor relations

Mr. Yuriy Kovalchuk,

Corporate Investments Director

Mr. Michael Iavorskyi,

IR Manager

Mr. Illia Ishchenko,

IR Manager

ir@kernel.ua

3 Tarasa Shevchenka Lane,

Kyiv, Ukraine, 01001

Tel.: +38044 4618801, ext. 72-75

Cautionary statement

Certain statements in this document are for-

ward-looking statements. By their nature, for-

ward-looking statements involve a number of

risks, uncertainties or assumptions that could

cause actual results or events to differ materi-

ally from those expressed or implied by the

forward-looking statements. These risks, un-

certainties or assumptions could adversely af-

fect the outcome and financial effects of the

plans and events described herein. Forward-

looking statements contained in this docu-

ment regarding past trends or activities should

not be taken as a representation that such

trends or activities will continue in the future.

You should not place undue reliance on for-

ward-looking statements, which speak only as

of the date of this announcement. Except as

required by law, the Company is under no ob-

ligation to update or keep current the forward-

looking statements contained in this docu-

ment or to correct any inaccuracies which may

become apparent in such forward-looking

statements.

This document does not constitute or form

part of any offer or invitation to sell or pur-

chase, or any solicitation of any offer to sell or

purchase any shares or securities. It is not in-

tended to form the basis upon which any in-

vestment decision or any decision to pur-

chase any interest in Kernel Holding S.A. is

made. Information in this document relating to

the price at which investments have been

bought or sold in the past or the yield on in-

vestments cannot be relied upon as a guide to

future performance.

Kernel Holding S.A. Investor Calendar

Q1 FY2023 Operations Update

16 November 2022

Q1 FY2023 Financial Report

30 November 2022

Annual general shareholders’ meeting

16 December 2022

Q2 FY2023 Operations Update

20 January 2023

H1 FY2023 Financial Report

28 February 2023

Q3 FY2023 Operations Update

21 April 2023

Q3 FY2023 Financial Report

31 May 2023

Q4 FY2023 Operations Update

21 July 2023

FY2023 Financial Report

25 October 2023

Stock information

Exchange

Warsaw Stock Exchange

Stock quote currency

PLN

Shares issued as of 30 June 2022

84,031,230

Bloomberg

KER PW

Refinitiv Eikon ticker

KER.WA

ISIN code

LU0327357389

Including 6,602,000 of treasury shares.